When you are thinking about building an internet business, there is going to be quite a few tough questions that you’ll need to answer before you actually begin.
Looking further than the skills you have, and the goals you’ve set for the business, one of the biggest decisions you’ll need to make is whether you build a business from the ground up or purchase a business that has already proven itself.
If You Decide You Buy A Business…
If you have the finances available, or can acquire them, purchasing an established business can help you shortcut your path to success. It makes it far easier for you to enter into a marketplace and expand on the established success quicker and more efficiently than starting from nothing.
Purchasing a business does require money up-front, and requires a faster learning curve, but gets balanced out by providing you with instant returns on your investment and a proven history of being successful.
Pros Of Buying
- You get an instant ROI. When you look at other investment strategies, purchasing an established internet business is one of the quickest ways you can start generating an ROI. Since you’re effectively driving the business, you are giving yourself far more control over how you generate returns than you could with other types of investments.
- You have a proven concept. When you purchase an existing internet business, you are substantially reducing the risk, which makes the opportunity far more attractive to lenders. To give you an example, let’s assume that you are borrowing $700,000 to buy a business that generates $200,000 yearly. Banks aren’t going to shy away from this deal like they will if you’re asking to borrow $300,000 to start a business from scratch.
- Your brand is established. Acquiring an internet business isn’t just about the business itself. You’re essentially buying an established brand, and capitalizing on the hard work that the previous owner invested into making the business a player in their industry. The relationships they have built will transfer over to you, and can make it far easier for you to continue growing the business in the future.
- You can focus on the big picture. Whenever you’re buying an established business, the previous owner has already taken care of the smaller day-to-day processes. These tasks can be incredibly time-intensive. By purchasing the business, you are also purchasing systems and processes so you can look at the big picture and keep the business moving forward without getting bogged down in the day-to-day.
- You have true flexibility. When the business that you want to purchase is already established, you can account for any existing debts while still generating revenue and drawing a personal salary. On top of this, you’ll still have revenue that lets you continue investing into the business. Instead of waiting for years to see a return and getting burned out while you are waiting, you will have the income needed to make moves and keep the business moving forward, while still paying yourself.
Cons Of Buying
- Large up-front expenses. There’s no denying that buying an established business makes it easy for you to shortcut the process that makes so many entrepreneurs give up. However, this foundation comes with large price tags that are often higher than what you would encounter if you build the business from the ground up by yourself.
- In-depth due diligence. When you break it down to the bare bones basics, purchasing an established business can prove to test even some of the strongest entrepreneurs. Before you actually acquire the business, you’re going to want to make sure you understand how to perform proper due diligence. Here’s what you’ll need to know:
- How to assess the business’ health.
- How to make a catalog of any liabilities and assets the business holds.
- How to uncover problems that may arise after you buy the business.
- How to make sure the business is legal and in compliance with your local laws.
- How to protect both you and your seller during the acquisition process.
Starting An Internet Business
Starting a business and building it to a point where it is profitable and can sustain the lifestyle you want is the ultimate dream. During a study performed in 2013, every month there are more than 500,000 entrepreneurs that decide to start a new business.
Even though building a business from the ground up can be far more affordable than buying a business, the amount of “sweat equity” you’re going to have to invest can easily make up the difference, and often times be what causes entrepreneurs to fail.
Pros of Starting An Internet Business
- It’s far more affordable. Think about a business that is generating $10,000 per month in profits. You may have to pay $300,000 to purchase that business. However, building that same business could cost you far less, in terms of money. Some of the greatest companies in the world have been started in a garage on a shoestring budget. Unless the business you want to start requires a heavy financial investment, building your own business is typically far less expensive than buying your way into a marketplace.
- It gives you complete control. Instead of adapting your personality and goals to a business that already existed before you, you get to build a business and a brand that’s perfectly tailored to your own goals.
- It can be a more personally satisfying experience. One of the biggest reasons to build the business yourself is that it can be both personally and financially rewarding. You get to set your own schedule, tap into your own creativity, build your own skillset, and give yourself the true independence you’ve always craved.
Cons Of Starting An Internet Business
- It’s far more risky to do. It’s unfortunate, but most businesses fail within their first 3 years. Even though starting your own business can be incredibly rewarding, it can also be incredibly risky. Without having a proven track record or customers, you could find that it’s difficult to secure the necessary working capital, or even manage the overall scope of the business. On top of this, your personal income could be tied to the business — which could run at a loss for the first year or two.
- You’ll be required to balance your work and your life. You’re not just investing cash to get your business off the ground. You are also going to be required to devote a significant portion of your life to getting the business to a point where it can sustain itself. This can cost you in ways that you may not have thought about, like your health, your relationships, and your free time.
- You’re dealing with being invisible. When you are just getting started, your products and services are going to be completely invisible to the public and your market. This can be an incredibly frustrating uphill battle, and getting yourself established in your market can end up taking a lot of time. You could spend significant amounts of cash trying to establish yourself in the market, which makes it longer to see a return on your investment.
- You have to be a jack of all trades. If you are starting from square one, you are going to be required to wear many different hats. What most entrepreneurs don’t realize is exactly how many skills they’re going to need, or have to develop to get their business to a point where it can sustain itself. You’ll need to learn how to brand the business, how to find trustworthy suppliers and service providers, how to build the website, and handle your own marketing. On top of this, you’ll need to be the business’ accountant. Every hour that you spend on these tasks is an hour that you’re not selling and generating revenue in the business.
Whether you decide to buy or build, owning an internet business is an incredible adventure. It’s one that has just as many risks as it does rewards, and both those risks and rewards can lead you to the financial and time independence that you’ve craved for so long.
Taking the time to make sure you are making the right decision, weighing out your options, focusing on your budget, managing your ambitions, and understanding the industry that you want to enter into can help you figure out which path to success is right for you.
About the author:
Jock Purtle is an internet entrepreneur and business broker. He regularly advises businesses, both small and large, on their web presence and growth strategies.
Photo Credit: Pixabay