Finance & Grow Your New Business. Angie Mohr

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СКАЧАТЬ goodwill along with the net assets of the business, you will be paying more than if you simply purchase assets and start from scratch. Buying an existing business is usually the more expensive option. However, a business that is already up and running may provide you with profits and a management income earlier. This may offset the initial cost. When you build a small business from scratch, it may take months or even a year before you hit the break-even point, much less make profit that you can put in your pocket. In the meantime, you will be investing a large amount of your time building the enterprise without remuneration, and this is a cost that you must figure into your calculations as well.

      Let’s look at the pros and cons of building a business from scratch versus those of buying an existing business.

      Building a Business from Scratch

      When you build a business from scratch, you will start with nothing but the tiniest grain of an idea. You will spend months or longer mapping out that idea, running cash flow scenarios, doing market and competitive analysis, writing a business plan and a management operating plan, and working on the business’s vision and mission statements. You will be meeting with bankers, accountants, lawyers, and financial planners as you build your external advisory team.

      Case Study

      It was then that the perfect business quite literally fell into Craig’s lap. It was his second wedding anniversary and he had taken his wife out for dinner at an upscale French bistro. As they were enjoying their desserts, the power went out, an occurrence that was becoming all too common on the Eastern seaboard where they lived.

      There were auxiliary lights in the bistro, just enough for Craig to see most of the patrons leaving, despite the servers’ quick efforts to light candles on every table. The server looking after Craig and Marnie’s table told them that some were leaving because they were uncomfortable with the blackout and some because the bistro couldn’t accept credit cards because its system worked solely on electricity. Craig sipped his wine and contemplated the money that the restaurant was losing because of the blackout, when, quite unexpectedly, the busboy tripped in the aisle and dumped a half-eaten plate of gnocchi in Craig’s lap.

      “I’m so sorry,” the busboy said, cleaning up the mess. “I couldn’t see where I was going. I hate these blackouts.”

      Craig wondered aloud to Marnie how many businesses were facing the same problem at that moment along the Seaboard. Business was being lost because of the lights not being on. Craig then recalled an article he had recently read in the paper about a new company called Green Power Inc. that was selling solar and wind energy solutions to both businesses and residences. Craig hadn’t given much thought to the concept until now, but suddenly realized the benefits to both business owners and homeowners.

      The next morning (several hours after the lights came back on), Craig called Green Power Inc. to find out more information. Craig met with the owner that afternoon and, two weeks later, Craig was presented with an offer to buy into a new offshoot of Green Power Inc. aimed at the residential market. Craig would have a 50 percent ownership stake in the new business with Gordon, the current owner of Green Power. Craig’s responsibilities would be those of the general manager; he would run the day-to-day operations and would head up all strategic and operational planning. For this, he would be paid a salary of $67,000 plus would receive dividends as an owner of the company.

      Craig spent the following week with his accountant, analyzing the offer and the potential return. He compared it to the cost of starting up his own alternative energy company and determined that the cost of starting from scratch would outweigh the additional profit from owning the entire business. He would not only have to invest in all of the marketing materials, but he would have to develop the necessary expertise in alternative energy. Craig’s best opportunity would be to buy into the new offshoot of the existing company.

      You will most likely open your doors before you take in the first dollar in revenues, and you will take the enormous leap of faith that customers will actually want what you are selling the way you had it laid out in the plan.

      It sounds scary but designing and building the business that exists in your head can be an extremely fulfilling and gratifying experience. So much so, that many successful entrepreneurs design and build businesses, then sell them once they’re up and running. Then they start all over again and build another one.

      Here are some of the pros of building a business from scratch:

      • You can design internal systems the way you want them to work right from the beginning.

      • It can be less expensive than buying an existing operation.

      • There is no risk of acquiring the previous owners’ liabilities or having to satisfy pre-existing warranties.

      • You can manage staffing needs more carefully (i.e., you don’t inherit employees that are sub-par and/or difficult to fire).

      There are some cons to building a business from scratch:

      • It can be more difficult and expensive to attract investors. Because the venture doesn’t exist yet, it will be riskier for them.

      • It can take longer to generate profits than with an existing business.

      • It can take a long time to build name recognition and goodwill with customers.

      • There is a much greater risk of failure than with a business that has a proven track record.

      Buying an Existing Business

      Buying an existing business is, in general, less of a risk for you as the major investor. You have the opportunity to watch the business in action and you will be able to access the historical financial information to determine patterns such as growth rate, profitability, and solvency. You know that you will be able to generate a return on your investment almost immediately as well as be remunerated for your management role in the business (and perhaps also your operational role).

      You may also choose to buy a business if you want to quickly introduce a new product to an existing customer base before there are too many competitors in the market. For example, if you have developed a brand new print-on-demand self-serve book station, you may want to have instant access to a thriving bookstore’s customers before copycats come on the market.

      Here are some of the pros of buying an existing business:

      • It can be easier to obtain external financing than if you build a business from scratch because the business has a track record.

      • You can market your existing products to a new customer base.

      • It is easier to manage an existing business model and fine-tune it than build it from the ground up.

      • You can generate profits right from the purchase date.

      • You can continue the business with the existing goodwill and name recognition.

      There are some cons to buying an existing business:

      • You may be inheriting the hidden headaches of the previous owner.

      • You may be inheriting “negative goodwill” if the business had a bad name in the community.

      • It may СКАЧАТЬ