To B or not to B? … is another question arising, during our ongoing research, to which we need to find an answer.
While we analyse and finalise the business concept and the preferred location, we also need to evaluate whether we buy a going concern, or build a business from the ground up.
Our aim, like any good entrepreneur is to minimise risk, preserve cash while growing the profit line.
While both building or buying have pros and cons, we believe that free Cash Flow is likely to be the final deciding factor. Let’s explore these options together.
To build top pros as we see them include:
- Find the preferred location.
- Establish the exact concept as we envisage it.
- Have control and full visibility from the outset.
To build top cons as we see them include:
- Bureaucracy with various business registrations and licensing.
- Recruiting and training of staff.
- Establish suppliers and supply logistics.
To buy top pros as we see them include:
- Business registrations, leases and licenses in place.
- Staff would be available and supply mechanism in place.
- Income in generated form day one.
To buy top cons as we see them include:
- While we intend to conduct a thorough due diligence, problems could be hidden.
- The location and concept may not be quite what we had in mind requiring additional investment to make it so.
- Depending how how the deal is struck, a large cash flow dent will be made at the outset to purchase a business.
When it comes to making this decision, every Build vs Buy opportunity will need be evaluate on its own merits. Potential purchases will need to undergo a thorough due diligence with the best possible deal structure … that is pay “as late as possible” … entrepreneurship 101 J.
These are then compared to what it will take to build the business we want from scratch. The comparison should include cash flow forecast, profit generation and break-even analysis. In addition, the likelihood of success and impact of various risks need to be considered.
So, let’s see what we do, Build or Buy? J
What else do you think we should consider?
Ciao for now
Pietro & Eltje