Member Article

Should millennial entrepreneurs start or buy a business?

The ‘millennial’ generation are now in their mid-20s to mid-30s - a time when many people think about going into business independently. While running a business poses similar challenges to those faced in previous eras, each generation has its own hurdles to overcome as technology and the commercial environment evolve.

Profiling the millennial business buyer

Millennial entrepreneurs are arguably more diverse ethnically, in lifestyle and in outlook than any previous generation of entrepreneurs.

This means millennials often have a flexible approach in all matters of commerce, freely borrowing and blending ideas from a broad range of cultures. They will readily adopt open and inclusive management practices and hopefully understand how to reap the benefits.

Financially, however, age is a factor which does not typically work in their favour. Britain’s current young generation earned £8,000 less during their 20s than their predecessors and one in four millennials are resorting to credit cards to make ends meet, according to research by comparison site TotallyMoney.com.

At least many will have a healthy credit score - so long as they meet their credit card repayments - which is a real advantage when it comes to securing funding for a business acquisition.

Somewhat less positively, disproportionately high numbers of millennials have credit card delinquency issues, with 3.6% of millennial credit card accounts having recorded delinquencies of 90 days or above. The negative impact of such credit histories, when considered alongside age-related credit barriers, may prevent some would-be business owners from meeting lending eligibility criteria for business acquisition funding.

Starting from scratch or buying a business?

The merits of starting up your own business, as opposed to buying a going concern, depend to some extent on the personality of the individual entrepreneur. However, there are some general points to consider.

Risk

Half of UK start-ups fail within five years, so a proven business idea often has greater appeal. While it is possible to start a business ‘on a shoestring’, acquiring an existing business generally - though not always - demands a higher capital investment at the outset, because you’re buying existing revenue streams, trained employees and a brand (hopefully) well known in its market.

Nevertheless, lenders are much happier to loan money against a profitable operational business than they are to gamble funds on a theoretical concept - however novel.

Statistics suggest that millennials don’t favour one path to business ownership any more strongly than other generations. The average age of a business buyer is 44.2, our research of buyers from around the world suggested, while the average age of start-up founders is 47 in the UK, according to research from Sandler Training, and 40 in the US, according to separate research.

Creative focus

Obviously, a brand-new business will demand creative input from day one, and will thus be an attractive prospect for those inspired by the chance to create a brand and develop an innovative product.

Others will be more adept at playing the longer game, securing a steady income, and gradually reshaping an existing business according to their own ideas. And while the start-up entrepreneur has to build an infrastructure and market an idea simultaneously, those acquiring an existing company will gain a business which ‘ticks over’ while they plan any desired redevelopment.

Support within the business

Building a successful business from scratch invariably requires general business know-how, plus industry-specific skills and a detailed knowledge of the sector in which you plan to trade.

Though you may struggle to succeed for long with an existing business you know nothing about, you are nevertheless surrounded by employees who do have expertise and there will be processes and structures in place to support your progress along a much gentler learning curve.

Profitable returns

An existing business will, based on previous trading, have a more predictable cash flow from the outset, which mitigates entrepreneurial risk.

However, a start-up business will require a heavy investment of time and money over a considerable period before the enterprise moves into a steadier state where regular profits can be anticipated. This is an essential difference and is often the decisive factor for those that opt to buy going concerns.

The critical importance of due diligence

But an existing business won’t be a ‘safe bet’ unless due diligence is carried out carefully and confirms the prospective purchase is a truly viable business. Research should extend beyond just the balance sheet to cover aspects like potential developments in the sector and internal issues such as the workplace culture and whether key employees intend to remain under new ownership.

Tips for millennial buyers

Build your credit profile

If you can upgrade your credit rating, you will improve your chances of securing business financing. Indeed, it might be worth putting your entrepreneurial plans on hold while you remedy a poor credit score.

You can improve your credit rating over time by cancelling unused credit cards, getting on the electoral register and using a credit-builder prepaid card, among other things.

Consider apprenticeship options

If you’re at the younger end of the millennial spectrum, then depending on the sector, you may have an opportunity to learn the ropes via an apprenticeship scheme. Not only will you gain experience in you chosen field without having to pay for a degree or vocational training, you will also establish a network of industry contacts that will come in useful when you are finally ready to start or buy your own business.

Join local business organisations

These settings will help you establish links with business owners, mentors and business lenders, and gain access to helpful resources for business buyers.

Mentorsme.co.uk, for example, offers mentoring services for growing businesses, the Federation of Small Businesses provides small-business advice and financial expertise to members, while Shell LiveWIRE is the UK’s biggest online community for young entrepreneurs aged 16-30.

Consider your attributes and circumstances

Deciding between a start-up and a going concern often comes down to preferring the thrill of building a brand from scratch or the lower risk offered by an established brand and revenues. Finances might be a factor too, with millennials often asset poor. An internet-savvy generation, many favour online businesses, which require neither premises nor - at least initially - employees. Many millennials don’t have children, making the higher risks and devotion of greater time and energy required by start-ups less daunting. However, those who do have children will usually have babies and toddlers, so might prefer the generally less demanding alternative path to entrepreneurship.

This was posted in Bdaily's Members' News section by BusinessesForSale .