Susan, my good friend, started a service business for $10,000. The business has matured and does quite nicely. The first year, she had a ROI of -0- after a wage of $30,000. Now, ten years later, she has an annual ROI of 500% after a fair market wage of $60,000. She never had to invest another dime from funds outside the business. She is a great entrepreneur!
Mark, my other friend, just could not get his head around how to start a business from scratch. He invested $40,000 of his own money and borrowed from others to buy a business. His first year he had a fair market wage of $75,000 plus an ROI of 50%. Now, seven years later, all of the loans are paid back, his wage is $110,000 and he has an annual ROI of 25%. He too is a great entrepreneur.
The difference between Susan and Mark in this discussion is about preference and skill or not for starting a business or having and investing money to buy a business. Neither is better or worse, merely different.
My personal preference is for buying a business, though I have started them as well. It is hard work starting from scratch. Such a complex plan with many, many activities, some of which I feel inept at. Why not take the existing foundation and build on it? Susan will say that building a business with only $10,000 invested gives great satisfaction and means, usually, a greater return on investment…though the cash in-pocket can be less to begin with.
Perhaps the sophisticated mathematician wants to do the ROI over the extended period to see who is ahead. It will vary greatly with every business, varying with investments along the way, changes in market place etc.
The exploration of a business-for-sale or business-start-up transaction is more than merely a mathematical calculation it is a calculation of personal interest, skills, resources available, and more.
