Buy or start a new business

Deciding whether to buy an existing business or start your own from scratch is always tricky. The bottom line is that if you buy an existing business, there should be existing customers from day one, so you get instant cash flow. If you start from scratch, then you need to generate new customers – steal them from other businesses or generate new demand. Both are equally hard.

The question is, how much are you willing to pay for instant cash flow, as (usually) it is always more expensive to buy a business than start, because of the ‘goodwill’ that sellers of businesses want.

‘Goodwill’ is an amount over and above the net assets and it is paid for businesses with great ongoing revenues. For franchise operations you pay franchise fees (which are essentially goodwill) for an established business model that should be easy for you to step into.

Rule of thumb – start your own business if:

• You can set up the business for less than the asking price of the business in question, and you have enough working capital to last without any customers.
• You have a plan to build a customer base (a better proposition than the competition, or a new market demand).
• You have expertise in the industry.
• You can access the right location.
• If this does not line up, then buying a business may be a better alternative.

Regardless of what you do, seek as much advice as possible before you start, or buy.