The Entrepreneur's Make/Buy Decision - Do I Start or Buy a Business?

As an entrepreneur, I have personally been faced with the decision of whether I should buy an established business or start one from scratch. Of course, each alternative has its pros and cons. One important factor is risk. The level of risk for each alternative will vary for each individual for each alternative.

Let's first examine the pros and cons of starting a business. Typically, starting a business requires a significant up front time investment and may, or may not, require a significant up front monetary investment. Since you are starting up, there will be the slow, determined effort to increase market share and revenues before you will see a return on your investment. Questions to ask before starting a business include:

1. How much time and energy to I have to put into starting the business?
2. How much money is required to start the business?
3. How much money is required to grow the business?
4. How long will it take before I can draw a decent income from the business?
5. Do I have enough savings to start the business and survive without a salary for an extended period of time?
6. Do I have an exit plan if things do not work out?

Of course, every person and every start-up will have their own set of unique circumstances. Your level of risk is a function of these circumstances. Having answers to the above questions will help you limit your risk should you choose to start your own business.

Now, let's examine the pros and cons of buying a business. Typically, buying a business also requires a significant up front time investment to search for, offer, execute due diligence, close on and learn to operate an existing business. If this business is profitable, there will likely be a significant up-front monetary investment to acquire the assets and goodwill of the business. The primary advantage of buying a business is you will be buying existing market share and cash flow. Therefore, you should expect to see an immediate return on your investment. Questions to ask before you buy a business include:

1. What type or types of businesses would I enjoy owning?
2. What experience and skills do I have to assure I will be successful running these types of businesses?
3. How much money do I have to invest?
4. What existing sources of funding are available to me?
5. How much money will I have in savings to compensate for any mistakes I make while learning the business?
6. How much do I expect to make in return for managing the business (salary) and as a return on my investment?
7. Do I have an exit plan if things do not work out?

Again, every person and every business acquisition will have its own set of associated risk factors. Having answers to the above questions will help you limit your risk should you choose to acquire an existing business.

If you are faced with the start up vs. buy decision, I encourage you to consult an experienced business intermediary. In addition to helping you acquire the right business for you, they should also be able to help you identify start-up business opportunities in your geographical area matched to your skills and experience.

For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at eric@buysellflbiz.com or 239-405-8818. Also, visit our Florida Business Exchange website at www.fbxbrokers.com and my personal website at www.buysellflbiz.com.