The Decision Matrix: Buying an Existing Business Vs Setting Up a New One

A consciously made decision to start or buy a business goes a long way in securing your position as a smart entrepreneur.

There are many ways to kick-start a brand new business. A decision that every entrepreneur faces at this point is – whether to start a new business venture from scratch or invest in an existing business and take off. The answer to this question is not easy, and one must analyse all the pros and cons to arrive at the right decision.

Let us take a deep dive and see how the odds are stacked for these two choices.

Challenges of starting a new business

Starting something from scratch can be thrilling, to say the least. However, the reality of setting up a new business from the scratch is not so thrilling. Take a look at some of the most common challenges that appear in the initial stages of launching a business and what they entail.

1. Acquiring the right talent/human resource and training them:
It is crucial to acquire and retain the right talent. The first few who join the new venture have the potential to create the right culture for growth and success. A fool-proof human resource strategy accompanied by fair and employee-oriented policies can result in the strengthening of this aspect and drive in potent results right from the beginning and in the long term.

2. Attracting new customers and increasing the base in a consistent manner:
A new business by definition has zero customers or at the most some initial adopters. A new name and a new unknown brand are challenges to be overcome here. However, communication is the most potent tool to attract new customers that should be leveraged in an optimum manner. If you wish to communicate to the target audience at large, then you cannot afford to ignore the relevance of appropriate communication channels that are available online and offline (newspaper advertisements, hoardings etc.). The key consideration here is the cost of acquiring a new customer.

3. Cost of building a new brand in a competitive market:
In today’s complex market structure aggressive brand building is almost a given. This decision has a direct implication on your advertising expenditure. You have to bet big on a revenue model which is not yet proven. However, being aggressive doesn’t mean having a blind presence on all the available platforms, but it simply translates to being active, consistent and relevant to the target audience.

4. Funding a new business:
You need funding even if you are buying an existing business. But finding funding for starting a new untested business is far more difficult. You need to pitch to bankers, Venture Capitalists for a very long time, trying to convince them of the revenue potential of your new business.

5. Getting the right location:
Sometimes the right location is already taken. If you are looking at setting up a business which needs constant footfalls, getting the right location is a tough job.

6. Unknown competition:
A new business can have unknown competitors ( as opposed to existing businesses, where the competition is easily identifiable). Till the time you launch your business, it is difficult to know who exactly will compete with you and in what ways.

Today, there is virtually a business for every idea in your mind. It takes specific efforts to look for the right one (we will get to that soon). Take a look at some of the reasons for buying an existing business.

1. A well-functional business model:
A successfully running business is nothing but a business model that has proven its worth and potency to keep generating profits.

2. Critical brand equity from the day zero:
The brand perception in the minds of the consumers plays a critical role in maximising the ROI. Buying an established business enables you to enjoy the existing brand equity instantly.

3. Existing customers with established distribution lines:
In the case of an existing business, the logistics/distribution and supply channels are already laid out well to reach a pre-existing customer base.

4. Trained staff to run the business:
Human capital is functional and in a productive state to produce the desired results with minimum training or any other kind of investment in case of an existing business.

5. A product or service with ready-made acceptance in the market:
An established firm/business offers products/services that are well-admired by the users and are readily accepted by them as against a completely new one which has to find its initial adopters and then loyalists.

6. Focus on growth instead of focus on kick-starting the business:
Escaping the teething troubles of setting up a new business, you are all set to focus on the resources and your faculties to expand the business and gain higher returns in case of an existing business.

The right way and place to buy a business

Now that you have carefully understood the supporting and negating factors affecting the decision of buying a business or initiating a new one, it is time to search for the right place where you can buy a new business. Local newspapers and magazines are some of the places where you can see such businesses on sale. But online platforms are way ahead in this regard. Platforms such as Tobuz.com, for example, not only cater to the different business needs of buying or selling a business but also support your search with an ecosystem through Advisors, Attorneys, Lawyers, Business Consultants, Accountants and Agents.

Do you have a burning passion for starting something? This is the time to take the leap of faith.

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