(starting a new business – 5 minute read)
Hey there accounting fans! Be sure to check out the first part of this post ‘Buying a business is better than starting a new one’!
Ok, real talk time.
I started my own business from scratch. To be honest, I kind of stumbled into it. I never saw starting my own business as a full-time endeavour. I just needed something to put food on the table whilst I was ‘in-between jobs’ (it was at the start of the pandemic – many had been lain off). In other words, I kind of started this whole thing just by winging it. As time went by, I began to take it more seriously. Now it’s my full-time job. I aim to build up the right systems for it to generate income for me with minimal effort – but that’s another story. For now, I’m just happy to be here!
Having started my own business from scratch. Here are a few reasons why I think starting your own business is better than buying an existing one:
Starting a new business is relatively low risk
Buying an existing business comes with a hefty price tag. Starting a new business means that to a certain extent, you get to decide how much you want to put into the business. Of course, this can vary based on the industry you are in. Starting a brand new restaurant often means having to spend money on refurbishment. On the other hand, starting a freelance designing business only requires a decent computer and/or art supplies.
But one point remains the same – you get to choose how much you want to spend to get it off the ground. Sure, there is an ‘ideal’ situation where you can get ALL THE BEST stuff to start up. However, it is often better to start off with what you can afford to see if your business even gets off the ground.
For example: Joni wants to start a car detailing business. He has about $20,000 saved up in his savings account. If he had the money, he’d buy a paintshed, an expensive airbrush kit with compressor and all the other expensive detailing stuff. Or he could just start off with some chemicals and hand tools to slowly build up his brand name.
It’s often better to start off small and slowly build up your tolerance for risk as you get better at the business. This way you really get to know if the business is right for you.
Starting a new business means getting to choose your clients
One of the risks of buying an existing business is buying into a clientele that you don’t know. These are clients that were acquired by the previous business owner. You don’t know what they like, how they behave and what they are expecting of you. There is no guarantee that clients won’t leave once you acquire the business.
On the other hand, when starting your own business from scratch, you can pick clients you like to work with. As you develop your relationship with them, you gain better insight into what their likes and dislikes are. You also get to grow the client base at your own pace. This is especially important when starting out as you don’t want to overwhelm yourself with too much work. Especially if you are starting this business as a side hustle while working a full time job.
Starting a new business gives you total brand control
A new business is like a blank canvas. You can grow it in whatever way you want. When buying an existing business, you are looking to buy over their brand identity as well. Ideally you’d look for a business with a good brand and reputation. But just as with the client base, the brand itself would have been crafted by the previous owner and not you.
If you are looking for more control over your business’ branding, starting a new business is better. You don’t have to deal with the legacy associated with the business brand since you are building it yourself! This can allow you to take some pretty risky marketing decisions to craft a unique brand.
Yes, buying an existing business allows you to leverage the strength of an existing brand. But starting your own brand gives you full creative control over how you want to develop your brand.
Things to consider before starting a new business
Of course starting a new business comes with some things to keep in mind.
Starting a new business requires a lot of discipline
When you buy over an existing business, the work processes and systems are already in place. You get some training on how to run the job from the previous owner and off you go. With a new business, you are making things up as you go along. You need to have a lot of discipline to produce work on time and at a level that your clients will accept.
You’ll have to work out your own systems and processes to keep you on track. It’s very easy for entrepreneurs who start from scratch to get distracted or burned-out because they didn’t have the discipline to stick to a schedule. And by disciplined, I don’t just mean in terms of productivity. You need to be disciplined enough to take breaks as well!
Expect to make a lot of expensive mistakes
When starting a new business, you’re going to make a lot of mistakes. That’s ok. Mistakes are how we learn and become better entrepreneurs. Some of these mistakes will be expensive ones. One of the mistakes I made when starting out was investing heavily in an accounting system which I now heavily despise. The $3,000 I spent on getting that setup will never come back, but I’m wiser for it.
In that respect, when you buy an existing business, the previous owner would have made all the mistakes and bore that cost for you. Of course there’s no guarantee you won’t make mistakes, but at least the previous owner will tell you what to look out for.
You’re not going to make a lot of money at the start
Starting a business from scratch means that your income stream will have to be built from scratch. At the beginning you’re only going to have a few clients. Until you invest more in relationship building and marketing (which takes time) you are not going to be earning enough from the business to support you.
Unless you have a lot of money in savings, a full time job or a spouse/partner who is the main breadwinner, starting a business from scratch is going to financially hurt. In fact, it is at this early stage where many new business owners give up. I remember that when I started my busines, I was making only $400 a month. It wasn’t enough to support my family and I was still looking for a full-time job to supplement my income.
Starting a new business VS buying a business
So, what will it be? Will you start your own business or will you buy an existing business?
Despite the click-baity titles I’ve used to generate clicks, the answer lies with you, dear reader. Which one is better depends on your situation.
Buying a business can be very risky, but if you find an amazing deal on a profitable business in an industry you understand, you should go ahead and make that purchase! This is especially true for business that have high fixed asset costs that you’d have to buy anyway if you started new, like restaurants, gyms and car repair shops. But please, check with an accountant first before buying!
Starting a business from scratch gives you full control over how you want to grow the business. Also, if after the first few months you don’t feel like it’s working out, you can always exit without having blown too much money on it. The going will be tough at the beginning, but the once the business is going, the sky is the limit for you!