This is the second of an ongoing series where we will discuss the advantages of buying a business over starting one.
In the last post we discussed the first advantage: you will have immediate income. Having revenue and profits on day one isn’t just a luxury; it does a great deal to lower your risk. And lowering your risk is a theme that will come up again and again in this series as we compare buying to starting.
The second advantage of buying also lowers your risk – the fact that the business has a history. And we can learn a lot from history.
As opposed to the unknowns (and high failure rates) of starting a business, an existing company has a real track record that you can examine. You will be able to thoroughly examine the financial records, tax returns and leases of an existing business.
Also, you will be able to more accurately judge the strength of the competition since the company you are considering has dealt with them on a daily basis.
The quality of the location and traffic of an existing establishment is known and has been proven over time – as opposed to a start up were the quality of the location is at least somewhat unknown.
In addition, as you study a business, it’s possible that you will be struck with new income generating ideas, niches that have been overlooked or weaknesses in the competition that can be easily exploited. Since you are looking at an actual business or competitor, ideas (as well as facts) can be assessed in much more realistic terms.
If you are just “thinking about” starting a business (meaning it’s just a vision at this point) than everything is much more speculative and theoretical – and making the correct decisions will be much more dicey.
Sometimes the most valuable information you get from a seller relates to their mistakes: the things they tried that didn’t’ work even though they sounded like great ideas at the time. You can benefit from their experience and avoid some of their mistakes. But if you start from scratch, all the mistakes will be your own.