Buying vs. Building an Online Business: Which Should You Choose?
Last updated on : January 31 2021
Online Businesses - Buy V Build
With so many new ways to make money online, you might not know where to start.
For many newcomers to the online business space, the two most common options are building an online business or buying one that's already making money.
Often, most first-timers choose to build something from scratch by starting a blog or a dropshipping business selling other people's products, which they market on a new website or social media profile.
Well, this is not always the best option, so we wanted to give you a more detailed outline of which choice is best for you based on your current expertise and future business goals.
Starting your own business from scratch is great, but buying a business might be a better investment of your time, energy, and money.
Jump to the section you want by using the links below.
- 1. Skipping The Startup Queue
- 2. Buying A Solid Operational Foundation
- 3. Reduced Product And Business Risk
- 4. Easier To Raise Funding Or Find Investors
- 5. An Ability To Focus On Scale
- 6. Easier To Scale Paid Ads
- 1. Raising Enough Capital
- 2. Buying A Business That's Not The "Right" Fit
- 3. Buying A Business With A Low Ceiling For Potential
A. Start A Business Or Buy One—Which Should You Choose?
No matter which type of business you decide to start, whether it be an online business or a brick-and-mortar establishment, it requires a ton of work to get it profitable.
One great thing about starting your own business is building your dream job based on a particular skill set or passion you already have. It gives you the chance to expand your creative side and work on something you genuinely believe in, and it allows you to share your knowledge and experiences with others while getting paid to do so.
There are so many reasons why starting your own business could be the right choice for you, but there are some disadvantages.
One of the most significant risks in starting your own business is investing your time and energy into an idea that is not proven to be a reliable means of generating an income.
Passion projects are great for your mental peace, but if you can't develop a steady income from your passion, it will always just be a hobby.
On the other hand, buying a business or, more explicitly, acquiring an online business offers way more potential in providing a career over a hobby.
Here are a few reasons why you may want to consider buying an online business over building one from the ground up.
B. The Perks Of Buying An Online Business
Right off the bat, the most significant advantage to buying an online business over building one is that you gain months or often years that the previous owner spent getting the business established.
1. Skipping The Startup Queue
You are essentially paying a premium to skip the "trial and error" period the previous owner spent testing what works and what doesn't, which can be a considerable advantage in the online business space.
With so many new entrepreneurs entering the digital space, it is becoming even harder to create a breakout product that sets you apart from the competition.
Acquiring a business that has already been tested and proven to be successful is a massive win for those looking to own a business and generate steady profits.
2. Buying A Solid Operational Foundation
Having a solid operational foundation for any business, whether online or not, takes years of work and countless hours to optimize.
Not only do you need to grow your audience and establish a market share for an evergreen product that customers need, but you also need to do so while remaining profitable after any marketing or advertising spend you have.
If this isn't a difficult feat in itself, you also need to establish systems to make your business run smoothly by either hiring a team of VAs or having some automation on the backend.
As a buyer looking to acquire a business, you can make sure your prospective acquisition is operationally sound and on a solid footing before making any commitments.
In particular, you will want to see it has critical operations in place and doesn't require an excessive amount of time and capital to bounce back from a steady decline in either traffic or revenue.
3. Reduced Product And Business Risk
When you buy an established business, the risk you take on has already been, for the most part, confirmed.
Before making your commitment ensure the business has established demand with an established audience and that performance is documented correctly, with analyzed profit projections.
4. Easier To Raise Funding Or Find Investors
Another advantage to buying a business already generating income is that you are more likely to find financial investors interested in partnering with you.
A financial partner is essential should you not have the capital on hand to invest in your desired business alone.
No surprise here, as private investors feel much more comfortable backing a business with a good track record over an idea you have for a startup without any evidence that it will work out in the end.
5. An Ability To Focus On Scale
A considerable advantage to acquiring an already established business is that you can focus on scaling your newly acquired asset instead of searching for a market fit and achieving your first sale.
Your time can be spent focusing on growth and improving the business model, and then reinvesting profits into parts of the business generating the best return on investment (ROI).
6. Easier To Scale Paid Ads
Someone who decides to build a business from scratch will need to focus on keeping their profits over time.
However, purchasing a business already in the green will allow you to spend more on paid advertising to generate even more traffic.
Paid advertising can pay off big time when you acquire a business.
Knowing that you already have a year or more worth of data analytics will help you make educated decisions on which channels you should pump more with paid ad spend.
C. The Disadvantages Of Buying An Online Business
While buying an online business sounds like it has many advantages for those who would like to skip the startup time and jump straight into scaling an acquisition to new heights, there are also some disadvantages to choosing this option.
1. Raising Enough Capital
The most obvious disadvantage is that you will need to have a good chunk of capital to make the acquisition and a decent amount of working capital to maintain it once you take full ownership.
How Much Capital Do I Need?
As a reference, if you were to purchase an online business with a monthly net profit of $2,000 per month over a year or more, you would expect to pay somewhere in the ballpark of $80k (check out this guide on starting a dropshipping business to understand how online businesses are valued).
Most people will not have this kind of expendable capital to purchase an established business, let alone an additional 20–30k as working capital on top of this amount.
However, it is easier for you to find investor financing for an existing business, turn to family or friends, or potentially look into your 401k to raise the necessary money you need.
Bear in mind that you are purchasing an existing income stream that will allow you to pay down debt after the purchase.
But, whichever route you take to raise the needed capital, be sure you know what you are buying and the risks you are taking on in detail.
You must have a detailed execution plan and have done full due diligence before committing any amount of funds to the purchase.
2. Buying A Business That's Not The "Right" Fit
Another disadvantage you may face when buying an online business compared to starting one from scratch is that you might not find precisely the industry or niche you prefer.
Many investors looking to acquire an established asset will often have difficulty finding the "perfect" deal within an industry they enjoy.
Not only might the niche or industry not fit, but the work itself might not be within their expertise, so they need to outsource key aspects of their new business to professionals with relevant experience.
3. Buying A Business With A Low Ceiling For Potential
One last disadvantage to buying is the scalability of a newly acquired business.
The previous owner may have already optimized the business leaving you little to grow the asset any further.
The solution to this issue is to look for an asset that lacks in one area you are an expert in and has strength in areas you are not.
Spotting easy wins with conversion rate optimization, monetizing an email list, or growing the social media platforms are examples of easy growth wins buyers look for during their due diligence.
D. How To Find A Suitable Online Business To Purchase
To start looking for qualified businesses, you could reach out to your friends and family and see who might have suitable connections in your private network. If that search returns few results, consider using a broker instead.
Reputable brokers help you understand which businesses for sale could be a good deal for you based on your selection criteria and budget.
To start planning, use this due diligence checklist to help you prepare your search and purchase of a profitable online business.
Whether you're looking to create a side income, live a digital nomadic lifestyle, or start your journey to building real wealth, buying a business could be the catalyst to help you reach your goals.
No matter which route you choose to take - building a business or buying one already producing steady cash flow - your new endeavor will require constant development.
Success doesn't happen overnight, and, as such, both of these options will require dedication and time to reach your desired goals. Whether you're buying or building, you will need to put in the hours and work to see any significant returns in your favor.
However, having a better understanding of either option's advantages and disadvantages, as outlined above, will give you better insight into which choice is right for you.
About The Author
Branden Schmidt is part of the marketing team at Empire Flippers. Originally from Los Angeles, California, he's spent the last decade traveling around the West Coast and different parts of Asia. After his service in the US Navy, he started his online career listening to the Empire Flippers podcast and has taken the skills he learned over the years to build a foundation in his digital journey.
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