Becoming self employed is an exciting prospect, but the first step is establishing how you intend to do this. Do you start your own company from scratch or do you buy a company that is already trading?
Starting a company from scratch allows you to set up the business exactly how you want. This may be a more attractive option to budding entrepreneurs. The alternative is taking over an established business and the opportunity to do this may come up as a result of the previous owner retiring or looking to move on and focus on something else.
Starting your own business or buying a company is a decision that is often made as a result of personal circumstances. There are advantages and disadvantages to both scenarios.
Starting your own business: Advantages
The most obvious advantage of establishing your own company is having the ability to make your own decisions, run the business how you want, employ who you want and determine your supply chain and customer base. Having the freedom to express your own business ideas is a major benefit in starting your own company.
Promotional elements such as logo, branding, company image and mission statements are all factors that you have control over.
Another advantage is cost. Setting up your own business often requires considerable funding but this is likely to be less than the finance required to buy a company that already exists. Starting from scratch also ensures there is less risk of unexpected problems or hidden issues such as debt.
When a company has been owned by a previous party, transparency in past business transactions is dependent on the competence of the previous management.
Starting your own business: Disadvantages
Starting your own company comes with risks. The success of start-ups is dependent on an owner’s ability to build a sustainable business. This will rely on establishing an appropriate customer base, good financial planning and efficient record keeping.
Setting up your own company requires hard work because everything has to be done. Many of the set-up tasks such as company registration, product or service development, establishing a supply chain and constructing a business model are already in place with an existing company.
Purchasing an existing company: Advantages
Security is a major advantage of taking over a business that is already trading. Essentially, you are walking into an established business model. It is far more risky to start without this and there are many uncertainties to deal with, such as cash-flow issues.
This is not the case with an existing company, as long as you carry out appropriate research into the company’s finances.
An existing company will have a good customer base, a financial history that contributes to good credit record and established relationships with suppliers. It is also likely that it will have a reliable workforce that knows the company well.
Purchasing an existing company: Disadvantages
Cost is one of the major disadvantages to purchasing an existing company. Previous owners will have invested significant time and money into the business over the years, so it is likely they will want to sell at a premium.
It is important that buyers carry out detailed research when taking over a trading business. The fact that a company has been trading for a number of years doesn’t make it profitable. An established company will have a particular way of doing business.
This means you will be buying into a business model that has been created by someone else. It is likely that you will have to continue operating in the same way.
This post is courtesy of Herbert of Two-Sided Perspective.
Image courtesy of phanlop88 / FreeDigitalPhotos.net
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