Starting a New Business vs. Purchasing an Existing Business
There are several immigration pathways that invites qualified entrepreneurs and investors from overseas to successfully become Permanent Residents and also expand their careers or make more money. These immigration pathways include but not limited to, Owner-Operator LMIA and Express Entry pathway from the federal government, Entrepreneur Immigration in British Columbia, International Graduate Entrepreneur Immigration Stream (IGEIS) in Alberta, Entrepreneur Stream in Ontario, Atlantic Immigration Pilot Program (AIPP) in Atlantic provinces of Canada, Rural and Northern Immigration Pilot Program (RNIP) and more.
As the requirements for each immigration pathway differs, there are numerous debates whether establishing a new business or purchasing an existing business is better in terms of immigration, profit potential, ease of operation, risk level and investment requirement.
Moreover, buying an existing business can imply various meanings such as purchasing a private business, franchise business and shares of either a private or franchise business.
Therefore, it is essential to understand the differences between the impacts and results that come from starting a new company versus investing in an existing business before any interested immigrants proceed with related immigration programs.
In this blog post, we will dive deeper into the topic to find out which option is better for you.
Part 1: Immigration
Each immigration pathway has a different prerequisite, so we’ll use an average scenario where most of the overlapping requirements meet. These eligibility qualifications include but not limited to, work experience, net worth, English skill level, education, local full-time job creation, legal admissibility to Canada and minimum investment obligation. The last criteria will be discussed on a separate area under Part 5. In addition, we’ll discuss additional criteria such as time and flexibility to become Permanent Resident.
Starting a New Business.
Work Experience: Having a minimum 3 years of experience as a business owner or 4 years as a senior manager in the past 5 years is a strong asset.
Net Worth: Having a minimum net worth of at least $300,000 CAD will give the candidate more flexibility to be eligible for immigration. The simple net worth calculation can be done by using this formula: Net Worth = Total Assets – Total Liabilities.
English Skill Level: Having a minimum of language proficiency of Canadian Language Benchmark (CLB) 4 in each of the four competencies; speaking, listening, reading and writing.
Education: Having a minimum high-school graduate is required, and having a post-secondary graduate is a strong asset.
Local Full-time Job Creation: Creating minimum 1 full-time job for local Canadians and Permanent Residents.
Legal Admissibility to Canada: Must be legally admissible to Canada such as based on criminal record and medical admissibility requirements.
Time to become PR: This option takes approximately 20 to 30 months.
Flexibility to become PR: The candidate is usually required to come to Canada to proactively setup and operate the business.
Buying an Existing Private Business.
Work Experience: Having a minimum 3 years of experience as a business owner or 4 years as a senior manager in the past 5 years is a strong asset.
Net Worth: Having a minimum net worth of at least $300,000 CAD will give the candidate more flexibility to be eligible for immigration. The simple net worth calculation can be done by using this formula: Net Worth = Total Assets – Total Liabilities.
English Skill Level: Having a minimum of language proficiency of Canadian Language Benchmark (CLB) 4 in each of the four competencies; speaking, listening, reading and writing.
Education: Having a minimum high-school graduate is required, and having a post-secondary graduate is a strong asset.
Local Full-time Job Creation: Creating minimum 1 full-time job for local Canadians and Permanent Residents.
Legal Admissibility to Canada: Must be legally admissible to Canada such as based on criminal record and medical admissibility requirements.
Time to become PR: This option takes approximately 14 to 20 months (including the time to purchase the business, which takes about 1-2 months if done fast).
Flexibility to become PR: Depending on the immigration pathway, the candidate can go back and forth from their own home country until their whole family becomes PR. However, the candidate must ensure the business is operating.
Buying an Existing Franchise Business.
Work Experience: Having a minimum 3 years of experience as a business owner or 4 years as a senior manager in the past 5 years is a strong asset.
Net Worth: Having a minimum net worth of at least $300,000 CAD will give the candidate more flexibility to be eligible for immigration. The simple net worth calculation can be done by using this formula: Net Worth = Total Assets – Total Liabilities.
English Skill Level: Having a minimum of language proficiency of Canadian Language Benchmark (CLB) 4 in each of the four competencies; speaking, listening, reading and writing.
Education: Having a minimum high-school graduate is required, and having a post-secondary graduate is a strong asset.
Local Full-time Job Creation: Creating minimum 1 full-time job for local Canadians and Permanent Residents.
Legal Admissibility to Canada: Must be legally admissible to Canada such as based on criminal record and medical admissibility requirements.
Time to become PR: This option takes approximately 15 to 21 months (including the time to purchase the business, which takes about 1-2 months if done fast, plus an additional approximately 1-month time to get franchise training done).
Flexibility to become PR: Depending on the immigration pathway, the candidate can go back and forth from their own home country until their whole family becomes PR. However, the candidate must ensure the business is operating.
Buying Shares/Stakes of Existing Private or Franchise Business.
Work Experience: Having a minimum 3 years of experience as a business owner or 4 years as a senior manager in the past 5 years is a strong asset.
Net Worth: Having a minimum net worth of at least $300,000 CAD will give the candidate more flexibility to be eligible for immigration. The simple net worth calculation can be done by using this formula: Net Worth = Total Assets – Total Liabilities.
English Skill Level: Having a minimum of language proficiency of Canadian Language Benchmark (CLB) 4 in each of the four competencies; speaking, listening, reading and writing.
Education: Having a minimum high-school graduate is required, and having a post-secondary graduate is a strong asset.
Local Full-time Job Creation: Creating minimum 1 full-time job for local Canadians and Permanent Residents.
Legal Admissibility to Canada: Must be legally admissible to Canada such as based on criminal record and medical admissibility requirements.
Time to become PR: This option takes approximately 15 to 21 months (including the time to purchase the business, which takes about 1-2 months if done fast, plus an additional approximately 1-month time to get franchise training done if required).
Flexibility to become PR: Depending on the immigration pathway, the candidate can go back and forth from their own home country until their whole family becomes PR. However, the candidate must ensure the business is operating.
Part 2: Profit Potential
Starting a New Business.
Return on Investment (ROI): The return on investment can be high as the initial investment can be low depending on which type of business the candidate is trying to establish. For instance, if the candidate has a high-income skill that he/she can just use to generate income, then all he/she needs is a simple office space to run the business, which minimizes the investment cost. If the new business gets established and promoted well, then the profit potential can increase further.
Breakeven Point: The breakeven point is a point that the business owner can breakeven to recover their initial investment costs. This point is usually lower for start-ups than purchasing an existing business. Therefore, the turn-around time to start making profit is faster for new businesses.
Buying an Existing Private Business.
Return on Investment (ROI): The return on investment is secured as the business already has historical data on revenue and expenses. The investor can expect how much they’ll be making and how much they’ll be spending every month.
Breakeven Point: The investor can have a clear expectation on when he/she will breakeven and make profits as he/she has access to data on the bottom-line number.
Buying an Existing Franchise Business.
Return on Investment (ROI): The return on investment is secured as the business already has historical data on revenue and expenses. The investor can expect how much they’ll be making and how much they’ll be spending every month. However, as the franchisor charges royalty fee that the franchisee must pay every month, the profit potential can be lower than that of the private business. The average royalty fee is 4-6% from the net sales and 3-4% for marketing, thus total of 7-10%.
Breakeven Point: The investor can have a clear expectation on when he/she will breakeven and make profits as he/she has access to data on the bottom-line number.
Buying Shares/Stakes of Existing Private or Franchise Business.
Return on Investment (ROI): The return on investment is secured as the business already has historical data on revenue and expenses. The investor can expect how much they’ll be making and how much they’ll be spending every month. If the investor purchases shares of a franchise business, then the franchisor may request the investor to complete franchisee training. This can cost extra. Moreover, franchise has monthly royalty fee, which is explained above.
Breakeven Point: The investor can have a clear expectation on when he/she will breakeven and make profits as he/she has access to data on the bottom-line number.
Part 3: Ease of Operation
Starting a New Business.
Business Setup Procedure: It usually takes a lot of time to setup a business as the business owner must find a place to lease, get into a lease agreement, have a solid business plan, create products and services, make operations manual for employees to follow, complete legal and financial due diligences and more. Once all procedures are setup, then the newly established business can be securely operated. Therefore, there’s a high amount of involvement expected on the business.
Operation Manual: All operations manual must be created from scratch as there’s no data that the new business owner will be taking over from.
Buying an Existing Private Business.
Business Takeover Procedure: The new business owner should follow-up with the legal and financial due diligences to take over the existing business such as lease agreement, business purchase agreement, financing requirement, credit check and more.
Operation Manual: Most of the existing business has an operation manual that the new business owner can refer to. Therefore, the interested candidate can usually save much more time to run the business than starting a new business.
Buying an Existing Franchise Business.
Business Takeover Procedure: The new business owner should follow-up with the legal and financial due diligences to take over the existing business such as lease agreement, business purchase agreement, financing requirement, credit check and more. Moreover, the business owner should pass the interview with the franchisor, complete the required franchise training and sign the Franchise Disclosure Document (FDD) accordingly.
Operation Manual: All franchises have an operation manual that the new business owner can refer to. Therefore, the interested candidate can usually save much more time to run the business than starting a new business as all the setups and procedures are already provided by the franchisor.
Buying Shares/Stakes of Existing Private or Franchise Business.
Business Takeover Procedure: The new business owner should follow-up with the legal and financial due diligences to take over the existing business such as lease agreement, business purchase agreement, financing requirement, credit check and more. If the business owner purchases shares of franchise business, then he/she should pass the interview with the franchisor, complete the required franchise training and sign the Franchise Disclosure Document (FDD) accordingly.
Operation Manual: All franchises have an operation manual that the new business owner can refer to. Therefore, the interested candidate can usually save much more time to run the business than starting a new business as all the setups and procedures are already provided by the franchisor.
Part 4: Risk Analysis
Starting a New Business.
Clientele Availability: New businesses does not have existing clientele; thus, it costs extra marketing costs and time for the business to make money. This translates into risk factor where starting a new business is riskier than buying out an existing business because the failure to generate loyal customers equal to failure of the business.
Immigration Application Failure or Delay: After spending so much time, money and effort into starting a new business, it’s possible that the result of the candidate’s immigration application may fail or get delayed due to unforeseen circumstances, or other factors. Therefore, it’s crucial to double check the candidate is aware of all risks and decides to proceed after ensuring their eligibility.
Loss of Capital and Time Investment: As all business owners and investors have, there’s a risk of losing capital and time invested into the business should it fail.
Continuous Loss of Additional Money: If the business fails more than expected, then the business owner can lose extra money every month if there’s a high fixed cost that cannot be flexibly controlled.
Buying an Existing Private Business.
Clientele Availability: Existing private business have an established clientele. Thus, the risk is lower than that of starting a new business.
Immigration Application Failure or Delay: After spending so much time, money and effort into starting a new business, it’s possible that the result of the candidate’s immigration application may fail or get delayed due to unforeseen circumstances, or other factors. Therefore, it’s crucial to double check the candidate is aware of all risks and decides to proceed after ensuring their eligibility.
Loss of Capital and Time Investment: As all business owners and investors have, there’s a risk of losing capital and time invested into the business should it fail.
Continuous Loss of Additional Money: If the business fails more than expected, then the business owner can lose extra money every month if there’s a high fixed cost that cannot be flexibly controlled.
Buying an Existing Franchise Business.
Clientele Availability: Existing franchise business have an established clientele. Moreover, the franchise business often has a much higher brand reputation and awareness than private businesses or new businesses, so the risk is lower.
Immigration Application Failure or Delay: After spending so much time, money and effort into starting a new business, it’s possible that the result of the candidate’s immigration application may fail or get delayed due to unforeseen circumstances, or other factors. Therefore, it’s crucial to double check the candidate is aware of all risks and decides to proceed after ensuring their eligibility.
Loss of Capital and Time Investment: As all business owners and investors have, there’s a risk of losing capital and time invested into the business should it fail.
Continuous Loss of Additional Money: If the business fails more than expected, then the business owner can lose extra money every month if there’s a high fixed cost that cannot be flexibly controlled.
Buying Shares/Stakes of Existing Private or Franchise Business.
Clientele Availability: Existing private or franchise business have an established clientele. In addition, if the candidate invests into the franchise business, then the he/she may enjoy lower risk as most franchise business has a much higher brand reputation and awareness than private businesses or new businesses.
Immigration Application Failure or Delay: After spending so much time, money and effort into starting a new business, it’s possible that the result of the candidate’s immigration application may fail or get delayed due to unforeseen circumstances, or other factors. Therefore, it’s crucial to double check the candidate is aware of all risks and decides to proceed after ensuring their eligibility.
Loss of Capital and Time Investment: As all business owners and investors have, there’s a risk of losing capital and time invested into the business should it fail.
Continuous Loss of Additional Money: If the business fails more than expected, then the business owner can lose extra money every month if there’s a high fixed cost that cannot be flexibly controlled.
Part 5: Investment Requirement
Starting a New Business.
The investment required to start a new business is usually low as the new investor can control the initial start-up cost. All fees can be lowered by negotiations, or even downsizing the business plan. In addition, depending on the nature of the business, the investment cost can be reduced to minimum such as for consulting companies where the major expense requirement is a small office space. As a result, the interested candidate can expect anywhere between $30,000 to $100,000 CAD to start a new business on average.
Buying an Existing Private Business.
The investment cost to purchase an existing private business can be extremely high or low depending on the size of the business. The price of numerous small businesses ranges from $100,000 to $500,000 CAD.
Buying an Existing Franchise Business.
The investment cost to purchase an existing private business can be high or low depending on the size of the business and the monthly net income. The price of numerous small franchise businesses ranges from $150,000 to $500,000 CAD.
Buying Shares/Stakes of Existing Private or Franchise Business.
The investment cost to purchase shares of an existing company is based on the value of the business the investor is buying. For instance, if the company value is worth $1,000,000 CAD and the investor is trying to purchase 51% of the business, then the investment cost will be $510,000 CAD. As the average price of existing private and franchise business ranges from anywhere between $100,000 to $500,000 CAD, thus the investor is expected to spend approximately $50,000 to $250,000 CAD.
Conclusion
The decision to either establish a new business or investing into an existing business is a difficult choice to make. Nevertheless, once you understand the pros and cons of each choice, and prioritize what’s most important to you, then this decision can become easier.
If you are interested in entrepreneur or investment immigration programs, or simply wants to know more about them, then please don’t hesitate to contact us anytime by using our contact us page or sending us a free assessment.
