Reduce Risk: Don't Start a Business...Buy One!
Which is riskier? Buying or starting a business?
I make no secret of advocating the purchase of an existing business as opposed to looking at a start-up option. In my opinion, between the two, the risk of failure is much less in finding a company to purchase and run.
First, there are plenty of small to medium sized enterprises with annual revenue of $1M - $20M available to take over. The baby boomer generation, inarguably in possession of the greatest number of business today, are beginning to retire. Many of them, for a wide variety of reasons, are not looking at heirs to carry on the family business. These companies are solid, with ordinary products and services that keep the typical community humming along: auto repair, heating and cooling, widget manufacturers, tax accounting and restaurants. These businesses will always be a needed part of the economy.
Secondly, by purchasing an existing business, the new owner has also purchased the income and history of operations. Cash flow is immediate and predictable, unless it is a distressed business one is buying to repair. Lenders and investors tend to be more attracted to real-time financials than pro forma assumptions.
Thirdly, assuming the business is healthy, chances are good that the new owner also now has access to:
a trained workforce
known vendors and established credit lines
necessary permits and licenses
a loyal customer base and referral base
a plan for the next growth stage
Entrepreneurs often grossly underestimate the time it takes to obtain and develop all these aspects of a successful business. With the right knowledge, even a distressed business bought off the chopping block can be turned around and restored to profitability with less risk (and time) than what is involved in a startup.
Finally, a better work-life balance is also more readily available to owners of established businesses. I do not say that it is a 9-5 lifestyle, but working with known factors is much less consuming than the guesswork and unforeseen circumstances that tend to accompany startups.
I do not advocate that nobody should go the start-up route. It takes really gifted people to put together something successful from the ground up and these folks have my respect. Capitalism loves innovation and there are a lot of questions out there in need of fantastic solutions. It is just that innovation is a fire that can either flash and burn out or channel into a nicely warming furnace, but it is hard to know which one you have before it is too late to change your mind. Starting a goods-or-services type of business in a neighborhood where such a business already exists seems as risky - as loyal customers must be won over from established competitors.
For those who have family and obligations, yet who want to run their own business, it seems evident to me that the least risky venture would be purchasing an existing company to run. In terms of the resources available and control thereof, success seems much more likely.
