Starting or Buying a Business: Some Pros and Cons
7 July 2025: Starting or Buying a Business
We consult with business owners all the time and have been doing so for nearly 25 years. But we also advise hopeful entrepreneurs and “wannabe business owners”. In this hopeful and wannabe category, we’ve found that what motivates most such people is the dream to be their own boss. They want to own a business.
Owning your own business is, of course, one the the three ways for ordinary people to become financially independent in America. And there are two roads to business ownership: starting one that you can build, grow and eventually sell and buying one, grow it more and eventually sell it. Which do you think is easier?
According to data from the U.S. Bureau of Labor Statistics, approximately 20 percent of small businesses fail within the first year. By the end of the second year, 30 percent of businesses will have failed. By the end of the fifth year, about half will have failed. And by the end of the decade, only 30 percent of businesses will remain — a 70 percent failure rate.
Admittedly, these are round numbers. They’re also averages. Some industries – healthcare for example – have better success rates; others, far worse.
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Business brokers and Realtors, join us in The Brokers Roundtable℠ this Thursday (3 PM eastern) for a live discussion and Q&A with Ben and learn how Deal Memo can provide one of the most important tools for selling a business. You can sign up for The Brokers Roundtable℠ here.)
This is not to say that you shouldn’t start a business. Other than the first few years out of school when I worked in banking, I’ve been a business owner my whole life; and I started each of the businesses I owned. Not all of them were successful. The failure rate of new businesses is very high and an aspiring business owner should be aware of that fact.
But starting a new business is only one way to achieve the dream of owning one. Buying is the other.
Buying a Business: The Downside
The perceived downside of buying a business is that the buyer has to pay for what the current owner has built. There’s no boot-strapping in buying a business.
Unless you’re funded with a couple of million in venture capital, when you start a business – a restaurant, lawn care company, healthcare service, auto repair, specialty wholesaler/distribution, small manufacturer or whatever – you’re starting out small, doing pretty much everything and scraping to get buy. As previously stated, the odds of long-term success are not favorable.
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To learn more, check out Resources in The Brokers Roundtable℠
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Starting a business is notoriously difficult.
The founders of most businesses underestimate the amount of money they’ll need to ramp up to profitability. They also tend to underestimate the amount of time it will take for the business to reach profitability.
Between marketing, operations, accounting, hiring, etc., they’ll almost always underestimate the amount of work they’ll have to do in the beginning. And in many cases, the founder doesn’t have all the skills to start and grow the business. Granted, some of these needs can be outsourced but some must be performed in-house. This means employees; or, at the very least, partners.
Buying a Business
Rather than starting a business, buying one offers several benefits.
Existing clients and customers: An existing business has a client or customer base. You will not have to build that base from scratch and assume the risks that starting a business – which, of course, has no customers – entails. People are already coming in the door and paying for whatever products or services the business offers. Yes, you may well want to expand that customer base but you will have the luxury of knowing that, absent taking your eye off the ball, the business will continue to function – and generate revenue – while you do so.
Existing Revenue: If you buy an existing business, at the end of your first day on the job you will be able to make a deposit of funds from sales. There is no small amount of security in this knowledge, a fact that I can attest to as having started several businesses myself, not all of which were successful. Buying an existing business, while always fraught with some level of anxiety, significantly reduces the likelihood of sleepless nights and the bulk purchase of antacids.
It is difficult to overstate the importance of existing revenue and the security it provides. Both starting and buying a business entail some risks but buying a business enables you to see the future much more clearly insofar as you can see the business’ past performance and can be reasonably secure in a steady revenue stream as you get acclimated to your new environment
Financing is Easier: Try getting a lender to finance a start up.
An acquisition of an existing business is hard enough to get financed. Getting a startup financed – at least conventionally – is almost impossible. Lenders are more willing to look at financing the purchase of an existing business because that business has a history, probably some assets and there’s a reasonable possibility that the seller is going to be part of the financing, thus ensuring the lender that the person who built the business will have a vested interest in making sure it continues to function, if not grow.
In addition, many jurisdictions offer financial support to qualified buyers of existing businesses. At the national level in the United States, this support comes from the U.S. Small Business Administration (SBA). There are also state and regional programs meant to support businesses that might be available. After all, even though it’s often difficult to believe based on their actions, most governments know how important businesses are to the health and desirability of their area.
There are similar programs in most western countries.
Buying a Business is Easier
Now, I’m not talking about a lemonade stand here, but starting a business is a challenge. It involves setting up the business from a legal standpoint, establishing an entity and registering that entity with all the appropriate government offices.
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Don’t Miss Out on the “Silver Tsunami”!
Once your business is a “thing”, you must build and establish a presence online – a website and social media accounts. You must start sourcing products or materials, establishing vendor accounts, make sure your new business meets all the licensing requirements and secures all the appropriate permits.
You have to start looking for the suitable location to site the business and establish a physical presence. You must analyze, choose, source and set up all the furniture, fixtures and equipment needed to operate the business.
While you’re doing all that, you have to recruit, interview and hire staff to help run the business. You’ll need to set up policies and procedures manuals, employee manuals, payroll systems and deal with countless other administrative headaches that will tax your patience and lead to even more sleepless nights.
When you buy an existing business, all these things have been done and are in place. Once you make the decision, you walk in the door of your “new” business and all cylinders are firing. You can focus immediately on growing the business.
The Bottom Line
Some people have the mental and psychological make up to be founders. In our experience, most don’t. But many more people have what it takes to run an existing business.
A decision as to whether to buy an existing business or start one from scratch depends on many variables, not least being the risk tolerance of the buyer. But for all the reasons mentioned above, buying a business would, at least from my perspective, seem like the easiest and least risky route to get into the boss’s office.
“If you really look closely, most overnight successes took a long time.”
– Steve Jobs
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at
jo*@Wo*******************.com