Building vs. Buying

By Townes, Glenn | Black Enterprise, January 2001 | Go to article overview

Building vs. Buying


Townes, Glenn, Black Enterprise


Would-be business owners need to carefully consider their choices

When it comes to owning a business, entrepreneurs have the choice of either buying an existing enterprise or building one from scratch. There are risks, advantages, and disadvantages in both scenarios. Potential business owners should actively explore both options in order to make their leap into self-employment a secure and profitable one.

Rudy LeCorps, owner of Verrettes Inc., a New York-based company specializing in small business brokerage and financing services, says, "Sources of capital to purchase existing businesses are more readily available than for start-up ventures, and the growth potential of the business can be measured by the history of the company."

LeCorps contends that there are several advantages to buying an existing business. They include:

* The buyer being able to use seller financing of a large portion of the purchase price, with varying amounts between 50% and 75%.

* An existing business with a proven track record of profits is generally an accurate gauge of the continued growth of the company after the sale.

* Buying a business will reduce some risk and expense by eliminating many of the tasks associated with starting a business, i.e.: supplier relationships, distribution channels, training and education, and essential employees having already been established.

It was the allure of these amenities, and a strong desire to be their own bosses, that led entrepreneurs David and Lisa Lynch to purchase Rocky's West Indian Bakery and Take-Out restaurant for $95,000 in October 2000. The Montclair, New Jersey, eatery has projected yearend revenues of $225,000.

"For us, buying an existing business was a better financial investment than starting from scratch," says David Lynch. "There was already a steady and regular customer base and the restaurant, where Jamaican cuisine is the specialty, is very popular in the neighborhood."

However, while there are clear advantages to buying a business, there are also some potential drawbacks to consider:

* Added debt a buyer incurs in the form of up-front cash needed and/or brokerage costs. …

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