Starting a New Business vs. Buying an Established Business: A Comparative Analysis

By Michael Lodge, The Business Advisor - www.lodge-co.com:  Over the course of my business years I have started five businesses.  From bottom - up.  At this point in my life I would look for an established business that is in the area of business that I know and have the love for.  When it comes to entrepreneurship, two primary options are available: starting a brand-new business from scratch or purchasing an established business. Both approaches have their own merits and drawbacks, and understanding the key differences between them is crucial for aspiring entrepreneurs. This article aims to compare the advantages and disadvantages of starting a new business and buying an established business, focusing on the ability to start fresh, client base considerations, and cost implications.

1. Ability to Start Fresh:  
Starting a New Business: One of the most appealing aspects of starting a new business is the ability to build everything from the ground up. Entrepreneurs have complete control over the vision, brand identity, products or services, and operational strategies. This freedom provides an opportunity to innovate, implement fresh ideas, and create a unique market presence.  For you to build a successful business you must love what you are building.  If you are just doing it for the money, you will fail every single time.

Buying an Established Business: Acquiring an established business offers the advantage of hitting the ground running. The new owner inherits an existing customer base, established brand reputation, and operational systems. This can save significant time and effort that would otherwise be required to build a customer base and establish market credibility. However, it may also limit the scope for radical changes or rebranding.  Again, as in starting fresh you must buy a business that you would love doing, to bring your expertise into the business to enhance it's direction.  

2. Client Base Considerations:  
Starting a New Business: A new business typically starts with no existing customer base. Entrepreneurs must work hard to identify and attract their target audience, build brand awareness, and cultivate a loyal customer base. While this can be a challenging and time-consuming process, it allows for tailored marketing strategies and the opportunity to shape the customer base according to the business's vision.

Buying an Established Business: Acquiring an established business means gaining immediate access to an existing customer base. This can provide a head start in generating revenue and cash flow. However, it is important to thoroughly evaluate the quality and stability of the client base before making a purchase. A troubled business with a declining or unreliable customer base may present unforeseen challenges and require considerable effort to rejuvenate.

3. Cost Comparison:  
Starting a New Business: Starting a new business typically requires a lower upfront investment compared to buying an established business. The costs primarily include market research, product development, marketing, infrastructure setup, and initial working capital. However, it usually takes time to generate revenue and achieve profitability, making financial planning and securing funding crucial.

Buying an Established Business: The cost of buying an established business can vary significantly depending on factors such as industry, profitability, brand reputation, assets, and intellectual property. While the upfront cost may be higher, there are potential benefits such as immediate cash flow, an existing customer base, established supplier relationships, and trained employees. However, it is crucial to conduct thorough due diligence to assess the true value and growth potential of the business.

Part of the process of starting a new business or buying an existing business is leadership.  I have written a book on the basics of leadership call, "You Can Lead."  You don't need a degree to lead, but you must know the basics of leadership and build from there.  Find a good business mentor that can lead you through both processes of leadership in business.  Books by Michael Lodge

Both starting a new business and buying an established business have their own advantages and challenges. Starting a new business allows for complete control, fresh ideas, and tailored customer acquisition strategies. On the other hand, purchasing an established business offers the benefit of an existing customer base and operational systems. The decision ultimately depends on factors such as personal preferences, risk tolerance, industry dynamics, and available resources. Regardless of the chosen path, careful planning, market research, and a solid business strategy are essential for success.