Start Ups vs Going Concerns Businesses

Main Differences between Start-Ups and Going Concern Businesses

When setting up a business, a key decision that you will have to make is whether you are going to buy a going concern or create your own start-up.

By definition, a going concern is an existing business that has proven to be solvent over a certain trading period. A start-up involves creating a new business that does not have a trading history and you will have to start from scratch. In the case of the latter, you will have no history upon which to base your future projections in terms of income and expenditure and no client base to work with.

Differences in Terms of Initial Creation

If you are planning on purchasing a going concern, it is likely that you will have to wait for a certain length of time before the business that you are seeking becomes available. Businesses do not come to the market as readily as houses and if you have a very specific niche business in mind, you may find that you simply cannot locate a suitable going concern.

Alternatively, a start-up can be created at any point; you simply need a suitable location and a good market potential. However, the same degree of certainty does not exist in terms of projected income and expenses, nor can you be certain that your chosen business venture would be supported by a sufficiently buoyant market in order to succeed.

Obtaining financing for a start-up can be harder than for a going concern, as it will be necessary to prove to the bank or other financial institution that the business has the potential to be financially successful. With a going concern, it may be easier to prove to the bank that repayments will be met from the likely income.

Deciding on whether you are going to purchase a going concern or to start a new business from scratch will largely depend on the type of business that you are looking to create. For example, if you are creating an entirely new niche, you are more likely to want to start from scratch in order to establish your own brand. An example of this would be homemade cards and invitations, where clients would be paying for a specialist talent that is unavailable elsewhere.

With more mainstream businesses such as clothes shops or newsagents, purchasing a going concern would potentially be much more prudent, as it is already proven that the chosen sort of business is viable at that location. It also guarantees that the property has suitable planning permission in place as well as the necessary fixtures and fittings.

Summary

 The decision between purchasing a going concern and creating a start-up will largely depend on the type of business that you are hoping to set up;

 Certain businesses such as individual niche products lend themselves to becoming start-ups, often because it is unlikely that a suitable going concern will make itself available at the right time;

 With a going concern, there is a degree of certainty which may assist with the financing of the purchase.