BUYING PRACTICE VS. STARTING YOUR OWN FIRM
By Admin | 14 Apr, 2020
Both have advantages and disadvantages. Let’s explore the advantages and disadvantages:
Advantages of starting a practice from scratch |
Advantages of buying a practice |
| All of the client relationships are to be built your own right from the beginning. | Already established client relationships with the seller. |
| Starting a business and setting up processes can be exhilarating. | Tried and tested systems are in place so you can just improvise and start running almost immediately. |
| Focused market will be targeted to get new clients. | Less risk since revenue and expense are more predictable based on practice’s history. |
| Staff hiring and vendor association decisions will be made by you. | Trained staff and vendors are already in place, freeing up your time so you are able to focus on higher-level work. |
| You create your own office. | You can learn from the experience of the seller. |
| To get the practice growing and get revenue at early stages you need to be a good sales person. | Since the practice is already running there is immediate and uninterrupted flow of revenue. |
| There is very little capital required upfront. Financing is difficult for a new practice | Financing is available for acquisitions whereas start-up financing is much more difficult to secure. |
Disadvantages/risks of starting a practice from scratch |
Disadvantages/risks of buying a practice |
| The duration from starting out work till receipt is long. There is outflow with no inflow for a considerable period of time. | If the acquisition is done through external financing then it will involve repayment of debt. |
| Since it is new practice, professionals end up taking clients that you shouldn’t take on. | There may be work that needs to be eliminated from the practice. |
| Businesses rarely change their professional consultants. Establishing a constant revenue stream can take a while. | Unless you know the clients and the systems, you may be required to work longer hours than the previous owner worked. |
| You have to do everything at first. The “grunt work” can be boring and unprofitable. | There may be clients or staff that needs to be terminated from the practice. |
| Working alone can be isolating. | A bigger ship is harder to steer. |
Make your decision based on score
Score each of these on a scale of 1 to 10, and then subtract the total score of the disadvantages from the advantages. Which option comes out ahead? Also, if you start a practice and decide it’s not going as quickly as you like, you can always try to buy later.
