Buy a business or start from scratch?

Sema Fongod
Head of Digital
Touch Financial
Blogger
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 The modern entrepreneur is often very enthusiastic about running a business successfully or becoming their own boss. However, becoming your own boss always comes with risks.

When you buy a business, you incur a calculated risk that diminishes the pitfalls associated with starting a business. When you start a business, you also incur a calculated risk that eliminates the potential for failure that comes with buying a business. Should you buy a business or should you start from scratch?

There are pros and cons to each investment option. Whatever route you decide to take, it’s important to be more specific about the business model that will work for you – such as whether it is home-based or office-based, as it could increase your chances of success.

Buying a business

The first step to take once you’ve decided to buy a business is to consider whether ownership will meet your financial and personal needs. There are several reasons for buying a business; some want to be directly involved in the day-to-day management while others are simply interested in the return on investment.

You can decide to reduce the acquisition risks by sticking to a sector you already know, buying into a franchise or simply getting involved in a multi-level marketing business.

There are a number of reasons to consider the purchase of an existing business rather than starting one:

·        Easier access to cash: Securing funding for a business acquisition is often easier than securing start-up finance. Lenders will be able to look at the business’ historical statements rather than rely on projections.

·        Level of staffing: With an acquisition, you are likely to meet skilled employees who have already been assimilated into the business’ culture. This way, it would be easier to implement your growth strategies, without having to worry about looking for new staff.

·        Salary concerns: As the acquired business should already be generating income, you get a salary from day one; unlike starting up, where you may have to wait several years.

·        Established brand and reputation: Existing businesses already have an established network of suppliers and customers saving you the hassle of building these up.

Starting a business

Starting a business often requires more than just the passion of being a business owner. Report released from the Times 100 say that start-up businesses have a very high failure rate, with as many as 1 in 3 failing in their first three years – one of the main reasons being poor planning or a total lack of it. To increase your chances of success, you can start a business if:

·        You have enough working capital to cover the business in the long-term

·        You have experience in the industry sector

·        Your business idea and plan stands out from the competition

·        The location is easily accessible

There are a number of reasons to consider starting up a business rather than purchasing an existing business:

·        Starting up a business is a cheaper option

·        The process of starting up is simple and straight-forward

·        When buying a business, the existing staff and customers may be resentful to change of ownership

Funding for running a business

The toughest challenge that you might face is securing the funds to buy or start a business. For many investors, it’s all about the money; maximum return on investment as easily and quickly as possible. How do you raise the cash needed?

When buying a business, it might be easier to secure finance from banks or investors, as the existing business already has an existing customer base, historical credit information and sometimes a healthy balance sheet. In addition, an invoice discounting facility can advance a pre-arranged percentage of the cash outstanding in invoices, with the cash made available within 24 hours. The funds released could enable you undertake a management buy-out/in.

Factoring could be a flexible solution to raising capital to start a business. It provides an immediate injection of funds into your business using the outstanding invoices as the main collateral. It is a facility tailored to smaller businesses and start-ups. It’s also convenient to sell your business idea to venture capitals in return for start-up investment funds or borrow from family and friends.

Sema Fongod is the copywriter for Invoicediscounting.uk.com, the invoice finance brokers, working with over 20 of the UK’s leading lenders, from boutique specialists to high street banks, to secure the most suitable cashflow solution for businesses.

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