Purchasing a business vs opening a business

[alphameso]

I know there are advantages for each of these, but which ones would you guys prefer if you had the capital for either one?
I am at the point in my life where I am looking to invest into a business with my father, but we are undecided in which business we will purchase or open.
A couple question that you guys can hopefully provide some input on

1) What are some businesses that provide a good ROI and profit margins? (We were considering either a coffee shop, liquor store, or a convenient store).
2) Has anyone had experience with liquor stores, convenient stores, or coffee shops before? If so, please share your input.

I realize this is a very vague thread, but any input is really appreciated, thanks.

[Business Attorney]

I know there are advantages for each of these, but which ones would you guys prefer if you had the capital for either one?

I don't think anyone can answer this in the abstract. There are several factors that you should consider:

1. Cost to buy versus cost to start. In some cases, an existing business with a current stream of income costs little more than the cost of the underlying assets. in that case it would make sense to buy a going business. In other cases, a seller is looking for a large premium over what it would cost you to start a new business. In that case, it may be better to build the business on your own.
2. Risk. How risk averse are you? A going business with an established revenue stream has proven that a market exists for its products or services. When you start a new business, you may be misjudging the market and find that there in not enough support to keep you in business.
3. How long does it take to make the business self-sufficient? If the business is one that develops slowly, even if it costs more to buy than to build the business on your own, it may make sense if the business is a type that takes months or even years to become profitable. Even though the initial losses may be figured into your startup costs, do you have the emotional stamina to stick with a business that loses money for months or even years?
4. In any particular business, you also need to look the inertia of the existing business. If there are things that are causing the business problems, even if they are fixable it may be better to start with a clean slate, all other things being equal.

There are other factors, too, but these are a few of the key issues that you must consider when trying to decide whether to buy or build a business.

[Express Web Studio]

If a business is for sale then it may be because there are problems and it's falling apart. Who would sell a successful business?

Starting a business is tough but if you plan and execute it well it isn't that bad. Keep lots of money aside for marketing!!!

I think the biggest problem is you need a little more direction on what exactly you want to do beside the "making money" part of it.
Imagine the boring mundane tasks involved in each type of business. Imagine the growth/failure potential of each business.

Make a careful decision because IMO most businesses fail because they weren't passionate about WHY their business is going to attract the customers from someone else's business.
You have to stand out!!!

[Fulcrum]

If a business is for sale then it may be because there are problems and it's falling apart. Who would sell a successful business?

This is a blanket statement that I've seen proven false many times. Sure it happens, but it is more the exception rather than the rule.

If someone were to walk into my shop and offer me the right figure I'd stand up, grab my keys, shake his hand, drive him to the bank to transfer the money, drive him to the MTO (DMV for our US friends) to sign over ownership of my truck, give him the keys, buy him lunch since I'll be hungry by this time, and call a cab after lunch to take me home. :cool: I can name at least a dozen other business owners that would do the same (though they may not buy lunch).

As original post, you need to approach what you want to do from the endpoint you have in mind.
Do you want to build a business from nothing?
Are you looking for a business that you own, but will work in as well?
Do you want a business that will allow you to spend minimal time on site working and just receive the checks?

Each avenue brings it's own share of risks and rewards. My question to you is "What, exactly, do you want to get out of having a business?".

[Business Attorney]

I agree with Fulcrum. There are many reasons people sell a business. Over the last 30 years I have have participated as an attorney in the purchase and sale of many businesses and the number of times that the business was in trouble were a very small minority. As Fulcrum pointed out, sometimes the price is just too good to pass up, but more often it is due to other factors - retirement, divorce, burnout, better opportunities, moving to a new city or state, etc...

[shadojake]

I know there are advantages for each of these, but which ones would you guys prefer if you had the capital for either one?
I am at the point in my life where I am looking to invest into a business with my father, but we are undecided in which business we will purchase or open.
A couple question that you guys can hopefully provide some input on

1) What are some businesses that provide a good ROI and profit margins? (We were considering either a coffee shop, liquor store, or a convenient store).
2) Has anyone had experience with liquor stores, convenient stores, or coffee shops before? If so, please share your input.

I realize this is a very vague thread, but any input is really appreciated, thanks.

Any particular reason you chose these three to consider? Do you have experience running any of these businesses? If not, how do you expect to gain the experience you need?

I would strongly suggest shadowing owners/managers who run these businesses, possibly even 2-3 of each kind of business to get get a feel of the inner workings .... behind the scenes. Sometimes people want to start a business, or buy one, because it seems fun, exciting, potential for lots of income, good source of passive income, etc. However, they can prove to be very different. I have a friend who owns a cafe/coffee shop. She tells me there is no way to own a coffee shop just selling coffee and make money. You need more than that to make a living. This friend sells coffee of course, but they also sell lunch ... healthy versions of common lunches but in moderate portions. They also have a tanning business ... tanning beds, spray on tans, etc. Also there is the factor of dealing with employees, equipment, etc. that need attention/adjustment/fixing/replacement.

I am sure you know this already but if you decide to buy an existing business, take a long hard look at the books. If you were about to buy a second hand vehicle you'd have it checked out by a mechanic first, right? Have an account of your choice go over the books, proposed purchase agreement, etc. He or she may see something you might miss in the excitement of the proposed purchase .... same reason we use real estate agents for property ... they can look at it with clearer vision.

[Fulcrum]

One other thing to add:

Once you do decide what you want to have as a business and how you want to approach it, don't let those around you make the final decision. Listen to their comments and concerns and if something said causes you concern, research it and verify the information.

[DeniseTaylor]

This is not an easy thing to answer.

On one hand, with an existing business, you can see how it's doing and use your own observations/research to determine what they are doing right and what they are doing wrong and try to gauge how you'll fare in their position. However, the reasons for success/failure may not be apparent and you could misjudge the situation.

With a startup - if you've had no experience in a given line of business - it will also be difficult to know the key ingredients to make a place go.

Major contributors to these kinds of business are location and inventory or what you offer. Example: with a convenience store, you might do very well to add a pizza counter if one doesn't exist. If it's in the right location, that addition could cause tremendous growth. But if you're sandwiched between two pizza places, it's not likely to improve things.

I think you're going to have to do a lot of research. Check out similar businesses around town and try to identify what works well for them or not. You could even talk to the business owners and get their input. In the end, though, it's what your customers need and want. If you can hit that nail on the head, you'd be in pretty good shape.

[bigcat1967]

I like to have my businesses as virtual. You only need a laptop and internet connection. No maintenance bills or any upkeep.

For me - working from home and having my clients in another town has always worked for me.

[Patrysha]

All things being equal, and with capital in hand, I think I'd prefer to buy an existing business in those particular categories. The start up stages are gruelling and market research can only go so far to reduce the risk of the unknowns. There are some businesses I'd rather start from scratch, but not a coffee shop, liquor store or convenience store.

[Harold Mansfield]

Well, the only other business I'd ever considering opening is a Bar, Restaurant/Bar, or Nightclub. I'd never do the nightclub alone at this age, so that's probably out.
As far as bars/ restaurants go, I know of a few great locations of existing venues with bad marketing skills that I would be interested in buying and rebranding/redesigning over starting new.

All things being equal and cash was no problem, if the right opportunity and location arose to build from scratch, I'd do that too.

It all depends on the situation. The main thing being, I know that business. So I could make either work.
I wouldn't ever buy or start a business that required lots of cash, that I didn't already know how to work and run or had a trustworthy team that did.

[vangogh]

It's a tough choice. So far the businesses I've owned have been started by me and they've all been online. I want to say I'd prefer always starting my own business, but I can seeing buying one too. I'll stick to online businesses. There are always sites up for sale. If I thought I could add value to the business I'd consider buying it. For example say a site isn't doing well, but has a good product and gets reasonable traffic. It's problem is poor design and copy. I think I'd be able to improve that site and have it make more money. In that case I'd certainly consider buying the business, depending on price and other typical factors.

I don't see myself owning a business with a physical location, but I'd imagine it would be the same. In my head I'd prefer starting the business, but realistically if I found the right business I'd buy it.

One thing to add is that I doubt I'd actively be seeking a business to buy. It would be more a case of discovering the opportunity to buy it and deciding if I was interested. I might actively seek websites to buy, though if that were the case it would likely be because I started a business fixing and flipping websites.