Many buyers of small business are dismayed by the money they have to pay to buy an existing business. They think that they can build the same business from scratch at a much lower cost. And this is true. To understand why this is the case you need to know the concept of book value of a business versus its market value. Book value refers to the money you can get if you sell all of the business assets in the market. The market value is usually higher than book value and is a result of goodwill that is associated with the existing business. It is this goodwill that the buyers of existing business are paying extra for. The goodwill is a result of all the work that existing owner has done to bring the business to its current level.

While it is true that you can build a business from scratch at a lower cost; it comes with its own set of problems. You have to understand both sides of the buy vs. build equation before making a decision. Below we have highlighted pros and cons of buying an existing business as opposed to building a new one. You can make your decision after studying this and looking at your own situation.

I agree. Experience and a track record are difficult to cost. Less than 10% of new businesses are still around after 5 to 10 years.
That is why excisting businesses with an established track record is always a good buy provided it grew to maturity and not dependand on the founder. That is why successful francises are more expensive because the business has an internal system that can support the core business.

It really depends on what kind of business you plan on investing in. If you want to open a new business, the idea needs to be sound or it won't be successful. I don't buy businesses that are struggling because there extremely difficult to turn around. You need to research any business you intend to be involved with so you know what your getting yourself into. It's not easy running a business, but I hope you have success in whatever you choose to invest in.