2-Minute Business Lesson

Start from Scratch or Buy a Business

The Case Study:

Jackie Winslow always knew she would run her own business one day. An admitted business geek, Jackie had been reading Fast Company and Entrepreneur since she was a teenager. She used to fantasize she’d actually been adopted and Seth Godin or Jeff Bezos was her biological father.

Jackie had a natural ability and interest in marketing, with a college degree in visual arts and a minor in business. Working part-time at a sign shop while in college, she imagined what it would be like to actually own the sign shop. Following graduation, Harry the owner hired her full-time. The owner was appreciative of her input, implementing her suggestions for improvements that really paid off.

Eight years went by and when Harry retired, he named his less-than-interested son as his successor. Jackie now had a decade of experience in the sign business with sweat equity in every aspect of operations from sales to administration, even production and installation. She parted ways with Harry Jr. and headed to her hometown to start her own sign company.

After researching the market and available franchises Jackie struck out on her own, armed with a strong business plan, small loans from friends and family and her life savings invested in the success of her new business. Because of the difficulty in getting traditional financing for a startup, Jackie was bootstrapping her operations with used equipment and hiring a few friends and family members who really believed in her.

The Question:

With entrepreneurial passion flowing through her veins, it is clear that Jackie would have been miserable working for the new owner of her last workplace. But there is one other optiot she never even considered before launching her own shop – buying one.

National statistics show that at any given time over the last decade, 20 to 25 percent of businesses with fewer than 20 employees are for sale. With the massive onslaught of business-owning baby boomers retiring, there are three businesses for sale for every active buyer. Thousands of profitable businesses across the country are shuttering because when the owner retired, or was forced to sell for personal reasons, they could not find a buyer.

The Lesson:

Consider buying an existing business, and then make it your own.

“New” is always more exciting than “used.” But in many situations, buying an existing business has many advantages over launching a startup. Yes, the sale price will likely be higher than what you might spend on your startup, but think about what you are getting:

  • Immediate cash flow
  • Positioned from day one for improvement and growth
  • A known location and existing customer base
  • Experienced employees
  • Supplier relationships
  • All equipment, supplies and materials

The tricky part is that most businesses available for sale do not have a For Sale sign in the window. In northern Michigan, commercial real estate agents will know of many unadvertised opportunities. If, like Jackie, you are looking for a business within a specific industry, an attorney can make confidential inquiries on your behalf.