Decision tool
Buy an existing business, or build one?
Model both paths against the same capital and see where you actually end up in five years.
On these inputs, buying reaches a stronger cash position within five years.
Buying trades capital and debt for immediate cash flow. Building trades time and uncertainty for a lower entry cost and full ownership of the upside.
| Factor | Buy an existing business | Build from scratch |
|---|---|---|
| Capital required up front | $160,000 | $80,000 |
| Cash flow in year 1 | $146,370 | $0 |
| Annual debt service | $103,630 | $0 |
| Time to meaningful income | Immediate | 18 months |
| 5-year cumulative cash position | $696,850 | $690,000 |
| Estimated exit value in year 5 | $937,500 | $660,000 |
| Primary risk | Overpaying for a declining business | Never reaching product-market fit |
| Failure rate profile | Lower — proven revenue | Higher — unproven demand |
This comparison is a simplified educational model using your assumptions and generic financing terms. It is not financial, lending or investment advice.
Common questions
- Is it cheaper to buy a business or start one?
- Starting is almost always cheaper upfront and more expensive in time. Buying costs more capital on day one but hands you existing revenue, staff and customers, so income starts immediately instead of after a ramp period.
- How much cash do I need to buy a small business?
- Plan for roughly 10-25% of the purchase price as a down payment, plus working capital and closing costs. The comparison above uses a 20% down payment and a ten-year loan so you can see the effect on annual cash flow.
- What is DSCR and why does it matter here?
- Debt service coverage ratio is cash flow divided by annual loan payments. Lenders typically want at least 1.25x. If a deal cannot clear that, the price or the structure has to change.
- When does building beat buying?
- When you have deep expertise in the niche, low capital, a differentiated product, and can tolerate 12-24 months without meaningful income. Otherwise acquiring proven cash flow usually wins on a five-year view.