Junior had to decide, “Do I buy or build a business from scratch.” It is for most a clear decision but not the same for each entrepreneur.
One reason to buy is to be assured of immediate cash flow, no uncertain ramp-up expenses. Another is the ability create one’s specific dream, building on an existing proven foundation that is paying the bills
For the build-it-myself entrepreneur, to spend all that money on buying something that can easily be built is foolish. For them, it is better to spend less up front, manage costs, and end up with everything just as they want it, no derelict anything left from a prior owner.
Frankly, either model can fail or succeed, whether a large or small investment.
June went the build-it method. She turned down opportunity to buy an existing salon for $75,000 and generating a cash flow to owner of $32,000. While equipment was included, it was not the equipment she preferred. “It was way over priced.” Instead she looked for the right rental space and, though she could not find it, she found a close substitute. $200,000 and a year later, she was still not turning a profit.
Ralph though, decided to buy a bargain rather than build his own. He had a choice of starting his own birdcall business, having honed his own successful call-manufacturing method. But, instead, he heard of an existing business available for $1,000,000, almost to good to be true, with clients built in, generating $1.5MM each year in revenue and the manufacturing equipment and trained staff were extra insurance. So rather than lease equipped space and hire a startup staff, he bought the existing business. Unfortunately, after purchase, he learned plenty of what was wrong with the business and why it may have been better to have a startup.
One cannot know the outcome that might have happened. June might have found she could cover all expenses after the purchase of the ongoing business just through the existing-business cash flow and gradually change the model to more fully suit her needs. Ralph, a guy for detail, may have saved his $1,000,000 and ongoing time and expense of sorting out a lemon.
Neither sought advice from experienced business coaches or consultants. That minimal extra expense may have saved their very large losses. SCORE is a free retired-exec service in many communities, providing great business consultation.
