Should You Buy an Existing Business or Start Your Own?
A question I hear get asked a lot is whether you should buy an existing business or simply start your own from the ground up. And it’s a great question.
You’ve always wanted to own a business and take the path of entrepreneurship. But you know that starting a business such as an LLC from scratch can be a tough road. It’s often time-consuming and financially draining.
This reality leads many to a critical question: should you just buy an existing business instead?
While buying a business might seem like a shortcut to success, it’s not as simple as making a purchase and collecting revenue. Data shows that buying a business has a much higher success rate, with some studies indicating a 90% survival rate after five years compared to about 50% for startups. This guide will help you understand what to expect with both options, so you can make the best decision for your goals.
Table of contents
Key Takeaways
- Higher Success Rate: Buying a business often comes with a proven model, existing customers, and immediate cash flow, leading to a higher five-year survival rate compared to startups.
- Easier Financing: Lenders like the Small Business Administration (SBA) are often more willing to finance the purchase of a business with a history of revenue than a new idea with no track record.
- Due Diligence is Crucial: A major risk in buying is inheriting hidden problems. A thorough due diligence process, where you review financials, contracts, and legal status, is essential to avoid costly surprises.
- Startups Offer Total Control: Starting from scratch gives you complete freedom to build your own brand, culture, and processes, a key reason many entrepreneurs choose this path despite the higher risk.
- Lower Upfront Cost (Potentially): While riskier, starting a business can sometimes require less initial capital than purchasing a profitable, established company.
Should You Buy an Existing Business?
The first rule is to pursue something you’re passionate about and have the skills to manage. From my experience in the fitness industry, it’s clear you need to know the landscape. If your background is in apparel, it probably isn’t wise to buy a business that deals with car audio installation. You need to understand the industry’s challenges and target audience.
Even with the right passion, you have to dig into the details. This process is called due diligence, and skipping it is one of the biggest mistakes buyers make. Your investigation should cover a few key areas.
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Financial Health
Is the purchase a good deal? You need to verify the company’s financial records for the last three to five years. Don’t just take the seller’s word for it. Review tax returns, profit and loss statements, and bank records to understand the real cash flow. Tools like online business marketplaces such as BizBuySell offer valuation resources to help you compare the asking price against industry standards.
Think about your own finances, too. You’ll need enough working capital not just for the purchase but to operate and grow the business for the first 12 to 18 months. Many buyers secure financing through SBA 7(a) loans, which can fund up to $5 million for business acquisitions but typically require a 10% down payment and a credit score above 680.
Operational and Legal Status
Look beyond the numbers. Where is the business located? Is it in a high-traffic area? For an online business, what do its website analytics and customer acquisition costs look like? You also need a lawyer to review all legal documents, including leases, supplier contracts, and any pending lawsuits. Overlooking hidden liabilities is a common pitfall that can turn a great opportunity into a financial disaster.
Finally, assess the market itself. Is the industry growing, or is it shrinking? Buying a business in a declining market is like buying a sinking ship, no matter how good the deal seems.
What to Do Immediately After You Buy an Existing Business
In business, just like in sports, you have to be ready to step up to the plate every single day. When you buy an existing business, you inherit its successes and its failures. Your job is to build on what works and fix what doesn’t. You can’t afford to get complacent, because your competitors are always waiting for a chance to move in.
Start by brainstorming new opportunities. Could you enter new markets or improve an existing service? Create a clear timeline with actionable steps for growth. Define your marketing strategies and how you’ll communicate improvements to both new and existing customers. This is about adding value from day one.
A critical, and often overlooked, aspect of buying a business is inheriting its employees. Research from MIT Sloan shows that 33% of acquired employees leave within the first year, a rate nearly triple that of regular hires.
You need to quickly identify your key players and those who might hold the business back. While you have the power to make changes, widespread layoffs can create a culture of fear. A better approach is to use retention bonuses and transparent communication to keep your most valuable team members. According to a 2024 survey by WTW, 72% of companies now use fixed retention payments to secure key talent during an acquisition.
Come Out of the Gate Running
The transition from the previous owner to you must be as seamless as possible. The last thing you want to do when you buy an existing business is to move slowly. You need to show customers and competitors that you are serious and ready to execute. I’ve seen successful businesses fail after a sale because the new owners sat back instead of taking immediate, decisive action.
Keep a close watch on your competitors. Be proactive, not reactive. Use tools like Google Alerts or social media monitoring software to stay informed about their moves. This allows you to anticipate market shifts and make necessary changes before you lose market share. The industry is always evolving, and you need to have your finger on the pulse to avoid being left behind.
Managing the day-to-day while planning for growth is a balancing act. It can be time-consuming, but it’s essential for long-term success.
Putting Yourself in Position to Win the Race
Business is a marathon, not a sprint. Those who try to move too fast often burn out. Be methodical and strategic in your actions to achieve the growth you desire.
There are two things you should prioritize the moment you buy an existing business.
1. Use social media to the fullest when you buy an existing business
Social media is a powerful and free marketing tool. It’s a direct channel to thousands, if not millions, of potential customers. If the business already has social media pages, analyze their existing strategy and identify areas for improvement. Don’t just post, engage. Respond to comments, ask questions, and build a community around your brand.
Choose the right platforms for your audience. For a B2B company, LinkedIn is often the best choice for professional networking and lead generation. For businesses with visual products, like a local bakery or clothing store, Instagram and Facebook are generally more effective. The key is to provide value, not just sell.
2. Exceed in value when you buy an existing business
This is huge. Never over-promise and under-deliver. Instead, provide so much value that your customers wouldn’t dream of going elsewhere. Research from Bain & Company found that increasing customer retention by just 5% can boost profits by 25% to 95%. That’s because it can cost anywhere from 5 to 25 times more to acquire a new customer than to keep an existing one.
Figure out what your customers truly need and deliver on it. Going the extra mile shows you care and helps build strong brand loyalty that will pay dividends for years.
Maybe You Should Just Start Your Own Business?
If the idea of fixing someone else’s problems or inheriting a business with hidden issues sounds exhausting, then perhaps you should consider starting your own business. Taking over something another person built isn’t for everyone.
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Personally, that wasn’t the direction I wanted to go with Weik Fitness. For me, the real reward comes from building something from the ground up and getting my hands dirty. I love the satisfaction of seeing a strategy work and helping a business grow from an idea into a reality. The failures and hiccups are part of the process, they force you to stay sharp and adapt.
Starting your own business gives you complete control. You build the company culture from scratch, reflecting your own values and vision. You have the power to hire the exact team you want, rather than inheriting one. While the upfront costs can be lower, with many online businesses starting for under $5,000, the path to profitability is often slower and requires more sweat equity.
Whether you buy an existing business or start your own, be prepared for both success and failure. There will be tough days and long nights. You’ll have to make difficult decisions. But in the end, the journey of building something of your own is incredibly rewarding. The hardest part is taking that first step.
FAQs
What is due diligence when buying a business?
Due diligence is the process of investigating a business before you buy it to confirm all facts are as they seem. This includes a thorough review of its financial records (tax returns, profit statements for 3-5 years), legal documents (contracts, leases, lawsuits), customer and supplier relationships, and operational procedures. The goal is to uncover any hidden liabilities or risks before you commit.
Is it easier to get a loan to buy a business or start one?
It is generally easier to get a loan to buy an existing business. Lenders, including banks and the SBA, view established businesses as less risky because they have a proven track record of generating cash flow and revenue. Startups are based on projections and ideas, which makes them a higher risk for lenders.
What are the biggest risks of starting a business from scratch?
The biggest risks are the high failure rate and the time it takes to become profitable. According to the U.S. Bureau of Labor Statistics, about half of all new businesses fail within the first five years. Startups have to build a customer base, brand recognition, and operational systems from nothing, which can take years and deplete financial resources before the business is stable.
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