Buying a Farm or a Business?

I am sure you have heard about the best way to own a small fortune. Start with a large fortune, buy a farm, wait a few years and you’ll have a small fortune. Even though it is a little sad, it is mostly true.

Some people have always had a passion to become a farmer. They buy one, run it for a short time, find it almost impossible to make money and unless they have bought a large farm and are well capitalized they close down as fast as they had opened. Passion to be a farmer only takes you so far.

This is kind of like starting a small business, if you don’t do it right your the chances are you will be closed within a year. Did you know the US Commerce Department did a study and looked at independently owned small business owners? They found that 50% of small business owners were closed down within their first year. Even more alarming 80% of these independently owned small business owners were closed by year 5. When they studied the franchise small business owners, 95% were still open by the end of year one and 75% still open by the end of year 5. The power of buying a franchise is huge!

Almost as good as buying a franchise is buying a business which has been open longer than 5 years. They have gotten to the point where they can prove they have made it past the critical early stages of business development. With an existing business the seller can prove if they are making money and how much they are netting. They can teach the new owner about employee management, marketing, accounting, salesmanship and every other important aspect of running their business.

The longer the companies track record is the greater the information they can provide to the buyer. Knowledge is power. The more knowledge you have about the business you are buying, the better chance you will have to NOT make a mistake.

Starting a business from scratch is scary because of the lack of knowledge of the entrepreneur. That is one of the reasons so many fail. I am not saying, don’t try, but buying an existing business is normally much safer than starting a new one. In some ways it is even as safe as buying a franchise. Either way, do your homework.