Buying a small business vs. starting one

There's been a recent increase in the interest of students in MBA and undergrad entrepreneurship programs who want to learn about buying a small business. MBA programs like Wharton, Harvard Business School, and Stanford offer full-semester courses on 'Entrepreneurship through Acquisition' and 'Search Funds'. At the Wisconsin School of Business, we've taught sections on buying small businesses as a viable career option for students for over forty years. This short blog will highlight some advantages and disadvantages of buying a small business, especially in contrast to starting a venture from scratch.

Advantages of Buying a Small Business

1. Established customer base: One of the major advantages of buying a small business is that it already has an established customer base. This means that the business has already proven to be viable and has a steady stream of income. This can provide a sense of security for the new owner and make it easier to predict future earnings.

2. Experienced staff: Another advantage of buying a small business is that it may come with experienced staff. This can be particularly helpful for first-time business owners who may not have the necessary skills or knowledge to manage the business on their own. Experienced staff can provide valuable insight and guidance, which can be especially important during the transition period.

3. Efficient systems and processes: Small businesses that have been in operation for a while often have established systems and processes in place. This can save the new owner time and effort in setting up the business and allow them to focus on other tasks, such as marketing and sales.

4. Potential for growth: Buying a small business also provides the opportunity for the new owner to take the business to the next level. By implementing new strategies and techniques, the new owner can potentially grow the business and increase profits.

Disadvantages of Buying a Small Business

1. Higher upfront costs: One of the main disadvantages of buying a small business is the higher upfront costs. The cost of purchasing a small business can be significant, particularly if the business is well-established and successful. This can be a significant barrier for many entrepreneurs, especially those who are just starting out and do not have a lot of capital.

2. Limited control: Another disadvantage of buying a small business is the limited control that the new owner has over the business. The business may already have established systems and processes in place, which can be difficult to change. This can be frustrating for entrepreneurs who have a specific vision for the business and may not be able to implement their ideas as easily as they would if they were starting a business from scratch.

3. Hidden issues: When buying a small business, there is always the risk of hidden issues that may not be immediately apparent. These issues could include financial problems, legal issues, or difficulties with staff. These issues can be time-consuming and costly to resolve and may not have been disclosed by the seller.