Why Buying a Business May Be Smarter Than Starting One

3 Ways To Grow Your Money Right Now, Part 2

A quick peek at the current 10 richest people in the world shows that all their wealth was created through business ownership (or controlling multiple businesses).

So it’s quite clear that if you want to build lasting wealth and reach Economic Independence faster, owning a business is the surest way to do it.

And if you’re serious about business ownership, buying an existing business can be a great option.

In this article, we’ll look at why it may be smarter to buy a business rather than start from scratch.

What Is the Problem With Starting a Business From Scratch?

There’s nothing wrong with starting a business. Many have done it successfully.

But the statistics don’t lie. As reported by Fundera, 20% of small businesses fail in their first year according to the official Bureau of Labor Statistics. And 70% are out of business by year 10.

So starting a business from scratch can be much riskier than buying an established one.

You have to build your business from the ground up, which means you need to know what you’re doing and build systems that work for your business.

And then there’s the fact that starting a company takes a lot of time and money.

When you buy an already established and successful business, you bypass all that uncertainty and struggle and can start cash flowing from day one.

So, if buying a business is so great, why don’t more people do it?

3 Common Myths of Buying a Business that Hold People Back

There are a few common myths that hold people back from buying a business:

First, from a psychological standpoint, a lot of people love the creative aspect of taking their business idea from vision to reality. So a common mental roadblock to buying a business is “it’s not my idea.”

As we’ll see, this is truly a myth. Many people start a business based on a “great idea” only to find that there’s just not a market for it. According to CBInsights, this is the #2 reason small businesses fail, just behind running out of cash.

A more common myth people have about buying a business is that financially, it’s too expensive (or at least, more expensive than you can afford).

Perhaps they envision coming up with $44B to buy Twitter like Elon Musk.

The fact is, many small businesses can be purchased for about the same amount of money you’d spend on a single-family home, and often with a smaller down payment. And in some cases, you can even negotiate ways to acquire a small business with very little or no out-of-pocket costs.

Even better, the business actually creates cash flow for you instead of becoming a money pit like home ownership can do.

The final reason a lot of people don’t consider buying a business instead of starting one is that they think they don’t have the technical skills.

It’s true that buying a business requires valuation, due diligence, negotiation, funding and closing skills. But most of these can be handled by a team of people you hire.

It’s like buying a home. The first time can be scary and intimidating with all the details involved. But after you make it through the first one, you realize it’s not as scary as you thought. And just like you let a realtor, loan officer, and escrow agent handle most of the details of buying a home — you’ll generally let other professionals handle a lot of the details of buying a business.

So, now that we know buying a business is more possible than most people think, let’s take a quick look at some of the advantages.

5 Quick Reasons Buying A Business Can Be Smarter than Starting One

It’s statistically less risky. When you start your own company, it’s entirely up to you (and your partners) to make sure all bases are covered. This means having a plan in place for everything from where you’re going to get funding (if at all) to what steps need to be taken in order to start making profits as soon as possible.
The need is already proven. As mentioned earlier, not having a proven market is the #2 reason startups fail. When you buy a business, the previous owners have already taken the time and risk of proving the business concept.
It’s less hassle and can be less stressful. The previous owners have done the heavy lifting of starting a business. They came up with the idea, created a name, incorporated the business, built a website, bought inventory, established processes, and secured vendors. Starting a new business can be an emotional roller coaster with all kinds of little problems you never anticipated popping up and demanding your time. When you buy a business, a lot of these startup “hiccups” have been ironed out.
Instant customers. One of the biggest benefits people find with buying a business is not having to worry about building a client base or customer list. The existing customers know what kind of service they will receive so you don’t have to spend time trying to convince them why your service is more valuable than someone else’s.
Instant profits. With a startup, there is often a period of time, from several months to several years, where there isn’t any profitability. When you buy a business you can look at the numbers and have a much easier way to predict how long it will take to see a return on investment, because all the baseline metrics have already been established. And if you buy well, you can start making money from day one.

How You Can See If Buying a Business Is Right For You?

Take the time to learn, before you leap.

This is especially important if you’ve never owned or operated a business before. Learning how to operate a business can be quite different than starting one from scratch, and it is worthwhile to consult with others who have experience in buying and selling small businesses before you make any final decisions.

If you want to buy an existing business, start building relationships with people who have done it before. Experienced “acquisition entrepreneurs” can give advice about everything from funding options to due diligence and negotiation tactics for buyers.

Other valuable resources are accountants, bookkeepers, or lawyers. They often know firsthand if any of their clients are thinking about selling a business so it doesn’t hurt to ask.

You’ll also want to investigate what types of businesses are available for sale in your area or industry. Some will fit better for you than others depending on your personal goals and your Investor DNA.

Finally, decide what kind of business owner you want to be. There is a big difference between owning a business and operating a business. If you want a more hands-off approach, there are ways to do that. And if you don’t mind being an owner-operator, you’ll have a lot more options.

Any way you slice it, buying a business can be one of the most exciting and satisfying ways to build your wealth quickly.

Conclusion

If you’ve ever considered buying a business, now is the time.

With Baby Boomers retiring in droves, there are more people looking to sell their businesses than ever before.

And if you want more guidance on this topic, stay tuned. We’ll be sharing much more detailed information on how to buy a business in the coming weeks and months.