Should I buy a business or start one?

What does the same money get you on each path?

Take a buyer with about $135,000 saved. That is the total for a median-size purchase in our savings breakdown: injection, pre-closing costs, an assumed 12 months of living costs and a reserve. The figures below use BizBuySell medians and the September 2026 rate cap. Project size, living costs and salary are assumptions.

Path 1: buy.

1. Total project costs: $400,000 (a $350,000 price plus $50,000 for working capital and fees).
2. Your cash injection at 10%: $40,000. SBA loan: $360,000.
3. Payments at 10% over 10 years: about $57,089 a year. Check current prime; the cap was prime of 7% plus 3%.
4. Cash flow from day one: about $165,000 a year of seller's discretionary earnings (SDE), the median.
5. After debt service: $165,000 − $57,089 = about $107,900 for your salary, taxes and reinvestment.
6. Most you can pay yourself and still meet the lender's 1.25x coverage test: about $93,600.

Path 2: start.

1. Your $135,000 funds equipment, a lease, marketing and payroll until revenue arrives.
2. Cash flow on day one: zero. Your salary depends on how fast you win customers.
3. Borrowing is harder. A startup has no operating history, and lenders size acquisition loans on history.
4. Your living costs come out of the same pool that funds the business. A slower start eats both.

Buying spends more of someone else's money, the bank's, to get income sooner. Starting spends only yours, and income comes later or not at all.

What are you paying for when you buy?

BizBuySell data puts the all-sector average at 2.57x SDE over 2021 to Q1 2026. In plain terms, you pay about two and a half years of the owner's pre-tax earnings. For that you get:

• Customers who already pay.
• Employees who already know the work.
• Suppliers, pricing, licenses and a reputation.
• A record of earnings a lender can finance. This is the big one. It is why a buyer can borrow 90% of a project. A founder has no comparable record to show a lender.

There is a tax angle too. In an asset purchase, the part of the price allocated to goodwill is generally amortized over 15 years for tax under Section 197. Both buyer and seller report the allocation on IRS Form 8594. Confirm the effect with a CPA. See why purchase price allocation matters.

When does starting make more sense?

• You have a real edge. A customer base that will follow you, a license, a product, or know-how buyers cannot get.
• Nothing for sale fits. Some service businesses cost little to start and sell for low multiples. Building may be cheaper than buying.
• You cannot use SBA financing. Since March 1, 2026, SBA loans go only to businesses owned by U.S. citizens or U.S. nationals with a U.S. principal residence. Without SBA debt, buying needs much more cash.
• You have time and low costs. If you can live for a long stretch on little or no income, a startup's slow ramp hurts less.

What are the risks on each side?

Buying:

• Overpaying for earnings that were overstated.
• Losing customers or staff who were loyal to the seller.
• Debt payments that start whether or not the business has a good month.
• A full personal guarantee on the loan for every 20%+ owner.

Starting:

• No revenue while costs run.
• Guessing at prices, demand and hiring, rather than inheriting them.
• Running out of savings before the business pays you.

Buying risk is mostly about what you paid and what you missed in diligence. Starting risk is mostly about whether the business works at all.

If you want to own several businesses one day

Buying is repeatable. Each acquisition adds cash flow you did not have to build, and the skills you learn on the first deal apply to the next. Size also changes value. GF Data's 2024 medians show companies with $1 million to $10 million of enterprise value selling at about 4.5x EBITDA, and $10 million to $100 million at about 6.5x. A group of small businesses run as one larger company may be worth more than the parts. That is the idea behind a holding company. It only works if you buy at sensible prices and integrate well. See what multiple arbitrage is.

Where these numbers come from: Medians and multiples are BizBuySell data via Beancount's SDE guide. SBA rules are from SBA SOP 50 10 8.1 as summarized by Cantrell Firm and Beancount. The rate cap is from NerdWallet(September 2026). Size-based EBITDA multiples are GF Data figures via Carry and Conquer. SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026; lender practice under it is still settling and these are secondary summaries, so confirm current terms with your SBA lender.

Related questions

Is buying a business less risky than starting one?

Different risk, not no risk. Buying replaces "will this work?" with "did I pay the right price for what is really there?" Careful diligence controls the second risk better than anything controls the first.

Can I buy a business and then grow it like a startup?

Yes. Just do not pay the seller for growth you will create. Lenders measure coverage on historical cash flow, not projections.

Is a franchise a middle path?

In some ways. You get a system and brand, but you pay fees and follow rules. See franchise resale vs an independent business.

Why would anyone sell a business that earns $165,000 a year?

Retirement is the most common reason, according to IBBA data. See why owners sell profitable businesses.

What comes next

If buying fits, the next choice is what kind of business to buy: franchise resale or independent business. The buyers who end up with the most valuable companies decide what the business goes into before they buy it.

Related articles

• Franchise resale or independent business: which is better for a first-time buyer?
• Why would anyone sell a profitable business?
• Is the baby boomer wave of business sales real?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.