Would You Rather Start a Business or Buy an Existing Business?

Recently, I asked this question on Quora: Would you rather start a business/franchise or buy an existing business/franchise? The responses were great as it showcased everyone’s unique appetite for business, however, I really liked this response from Chad Pavel and I wanted to share it with you all:

Depends on your experience, capital, and goals.

If you can buy a good business and improve it even marginally, it can pay off BIG time for you. You can do this even in a year or two.

You could start a company, take on the risk and bear the unknowns, and have it pay off BIG for you.

Both ways are great ways to generate wealth.

Buying an existing business

You could buy a $1 million revenue business that does $100k in profits for say $250k (2.5x earnings is acceptable) and fund it with a SBA loan and some savings. You own 100% of it and owe a bank $200k.

Take two years to grow revenues to $1.4 million and improve profits to $300k.

Now the business might be valued at 3x earnings, which is $900k.

So in two years you made profits of about $500k ($200k year 1 and $300k year two), have a business now worth $900k, and can pay off the loan and run your business forever.

You just improved your net worth by $950k ($900k-250k valuation + $500k in profits – $200k in debt) in two years and paid yourself a salary along the way.

Start a business

Start a business in your spare time, save $5k a month, quit your job when you are 100% certain that going full time would grow the business meaningfully, and run it full time (don’t quit your job without at least covering your base salary or having investors please).

In two years you have a business doing $500k+ in revenue and generating $100–200k in profits.

Depending on the industry and revenue model , your business could be worth $500k to over a million.

Similar financial scenario as buying a business, just depends on what you want and tolerance for risk.

With that said, what do you think? Would you rather start a business or buy an existing business/franchise? Comment below as I would love to read your thoughts.

Kind regards,

Nunzio Presta

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