Company Formation vs Buying a Company

As we have stated in previous posts, the number of people in the UK who hold aspirations to start their own business has increased during the recession. Increasing company formation figures confirm this to be the case. However, the lack of finance available to start up businesses, to question whether it is best to start up their own company from scratch, or buy an existing business.

Purchasing an existing business is, in essence, a much simpler proposition than starting your own company completely from scratch. One of the main reasons for this, is the fact that, by definition, a start up company is an un-tested business proposition and therefore attempting to raise finance – especially in the current economic context – is extremely difficult. While raising finance for an existing company, is comparatively easier.

It is a well published fact, that most recently formed companies fail within the first year of trading. This is due to the fact that investors and banks alike, are largely reluctant to put their money into a new company that may fail and is also unlikely to return their initial investment for some years to come.

The same theory also applies to getting suppliers, employees and indeed customers on board with your new venture; people are much more likely to trust a company with an existing track record.

However, despite the fact that raising initial finance may be easier, buying an existing company is likely to be much more expensive than the cost of starting your company