If you’re intrigued by the idea of owning and operating a business but don’t want to start a business from scratch or pursue franchising or direct sales, a final option is to buy an existing business. Although there are many rewards associated with building a business from the ground up, there are distinct advantages to buying a business that’s already established. There will also be an increasing number of businesses for sale to choose from. An estimated 65 percent to 75 percent of all small businesses in the United States—some 10 million—will likely go up for sale over the next five to ten years as a result of the retirement of baby boomers.^[1]

There are two primary advantages to buying an existing business. First, you avoid the time and expense involved with selecting and testing a business idea. Second, you start, on day one, with a business that has customers and an established cash flow.^[2] You’ll also have an easier time obtaining financing or funding. Bankers like to see three to five years of proven performance before they lend money to a business. As mentioned in Truth 11, “Starting from scratch: Developing your own product or service,” this reality works to the advantage of the buyers of existing businesses and to the disadvantage of businesses started from scratch.

Although there are many rewards associated with starting a business and building it from the ground up, there are distinct advantages to buying a business that’s already established.

All told, there are ten primary advantages to buying a business versus starting one from scratch:

An existing business may also offer amenities, like an ideal location, which you’d never be able to replicate starting a similar business from scratch.

The primary disadvantage to buying an existing business is the cost. The hard work involved with starting and building a business, along with the customers and cash flow that come with it, is built into the purchase price. This intangible is often called goodwill, which is the excess of the purchase price over the value of the assets of the business. So it’s generally more expensive to buy an existing business than it is to start a similar one from scratch. There is also the possibility of hidden costs. For example, some of a business’s best employees may leave once the business changes hands, even if they indicated they would stay. Similarly, receivables that were thought to be collectable may turn out to be uncollectable. You can anticipate these types of complications and build them into your offer price to a degree, but it’s hard to anticipate everything, and disappointments often occur.

It’s also hard to find a profitable business for sale at a reasonable price. Business owners often have an inflated idea of the market value of their business. In addition, it’s not uncommon for the owners of businesses with fading potential to try to unload them, regardless of how good they try to make them appear. Still, thousands of businesses are bought and sold every year with good results. The most common places to look for businesses for sale include

Proceed cautiously and thoroughly check out the businesses that spark your interest. If you get serious about a particular business, hire an attorney to represent you. You may also want to hire an accountant to help you go over the business’s books. While you’ll have to swallow hard when these professionals quote their fees, it’s normally small potatoes compared to making a major mistake in the process of buying a business.

Proceed cautiously and thoroughly check out the businesses that spark your interest.