Advantages and disadvantages of buying vs setting up a business
When starting a business, there are several approaches to consider, including setting up a business from scratch or acquiring a readymade one. The route you choose depends on your business plan and financial position. While a newly established business offers a fresh canvas, a readymade business offers an established brand, client base and business structure. The level of control you wish to exert over your brand image and, ultimately, your affordability, will shape this decision.
We consider the advantages and disadvantages of buying a business vs setting up a business.
Should I buy a business?
You can take the ready-made approach to becoming a business owner by buying a business that’s already established and operating. This is a popular route for aspiring entrepreneurs, searching for ways to start a business that’s ready to hit the ground running, with little in the way of upfront costs.
Starting a business from scratch requires substantial start-up capital as the structure must be built, processes established, assets purchased, and brand identity created. Buying a business bypasses all these steps and, therefore, requires less start-up capital and minimal business planning.
Advantages of buying vs starting your own business
Established client and supplier base – An established business has an existing client and supplier base, which means you can continue trading and have guaranteed income from day one, providing the transition is smooth. Establishing a reliable and loyal client and supplier base takes patience, time and trial and error. Buying a business skips the wait and brings you directly to the result.
Less startup costs – When setting up a business, you must have sufficient cash to cover startup costs, which will form the bulk of your initial spend. These are one-off costs that incur to get your business up and running, and trade-ready. When buying a business, the startup costs are substantially lower as the business is already established.
The cost of setting up a business typically includes:
- Company registration – If you are setting up a limited company, you must register the company with Companies House, which costs £50 (online registration).
- Accounting services – As a limited company director, you’re legally required to prepare and file accounting records. You may employ an accountant to help maintain company records, prepare accounts, submit company tax returns and calculate tax liabilities.
Unless you have the knowledge and skills to take the DIY approach, consider employing an accountant to help fulfil your legal reporting obligations. You may choose to continue with the same accountant or choose a new accountant. - Marketing – You may employ a marketing specialist to create a brand, logo, website and marketing collateral. When buying an existing business, the brand identity is usually well established, which contributes to its overall value. This can lift a substantial financial weight off your shoulders as startup marketing costs can be expensive, from purchasing domains, developing a website, to producing marketing material.
- Business premises – If you require commercial premises, consider buying a business with freehold or leasehold commercial property. This cuts out the arduous search for property that can take time and incur costs. When buying a business with commercial property, if freehold – this adds to the value of the business, and if leasehold, you may have the flexibility to negotiate better terms.
If you’re setting up a business that requires property access, you will need to source suitable property, which can incur high costs, including a mortgage broker fee to secure property finance or a solicitor’s fee to seal the deal. - Company assets – Investing in company assets when setting up a business is significantly cash-intensive, albeit essential. Company assets equip a business with the tools necessary to function, such as specialist equipment, machinery, inventory and stock. While expensive from the outset, company assets are the bread and butter and contribute to the value of a business.
When buying a business, it usually comes fully equipped, which means no unexpected costs or substantial startup costs, which may be more financially sustainable. This adds to the appeal of buying an already established business.
Disadvantages of buying vs starting your own business
Reputation – An established business is far from a blank canvas, as it will have history and a reputation. If this aligns with your business values, this is a major selling point; however, if this is off the mark, you may consider setting up a new business.
Established systems - An established business will have an existing client base and supply chain. If you wish to change suppliers, you may be restricted until contracts or agreements allow. If you wish to change the demographics of the target client base, this transition may take time. If the business employs staff, they may be resistant to change; however, this can be remedied through clear communication.
Improvements – Buying a business means owning a business entity and the associated infrastructure. If processes are inefficient and require significant improvements, this may incur additional costs. While you will have assessed the structure of the business prior to buying it, this process only provides a snapshot view.
Upgrades – Business owners looking to dispose of their business in the future may keep their spending in check and limit upgrades. Therefore, dated business assets may require an upgrade. While this may contribute to a lower sale price, it can incur higher startup costs.
There are many pros and cons to buying a business vs setting up a business. If a unique opportunity arises to buy a business with a strong financial track record, high growth potential and substantial goodwill, this can provide a head start to aspiring entrepreneurs.
How can Selling My Business help?
If you are considering buying a business, get in touch with a member of the Selling My Business team for expert guidance on how to prepare and what to look for when buying a business. With over 60 years of experience, the Selling My Business team have been matching aspiring business owners to ambitious businesses across the UK.
