ISSUE 010
Buying Instead Of Building
Entry 003 in this pillar was about the businesses whose owners are getting ready to leave, and found that most of them plan to close rather than sell. This is the same question from the other side of the table. If you want to own a business in a small Missouri city, buying one that already has customers is a real option and almost nobody frames it as one. The evidence on whether it works out better is thinner and stranger than I expected, and the most-quoted numbers come from people who are paid when the deal closes.
An idea worth thinking about
Businesses that were bought survive longer. Match them properly and the advantage vanishes.
Five researchers — Guoqian Xi, Jörn Block, Frank Lasch, Frank Robert and Roy Thurik — took a French government dataset covering firms created or acquired in the first half of 2002 and followed them for up to 68 months. Their sample held 34,872 entrepreneurs, of whom 3,758 had taken over an existing business and 31,114 had started one from nothing. The work later appeared in Industrial and Corporate Change.
The raw comparison says what everyone expects. Takeovers survived a mean of 56.06 months against 51.51 for new ventures, a gap of about four and a half months, with survival rates of 57 percent against 55 percent. The hazard of exit for takeovers was 0.92, statistically significant. Buying an existing business looks safer.
Then they matched each takeover to a start-up with similar characteristics — the founder's experience, education, motivation, sector, size — and ran it again. The survival-rate difference disappeared: 57 percent for takeovers against 58 percent for new ventures, not significant. The hazard ratio moved to 0.98 and stopped being significant. The mean survival gap narrowed to about three months and stayed significant, so something is left, but the headline advantage was mostly selection. People who buy businesses are different from people who start them, and the difference travelled with them.
This is the same shape as entry 004's finding, where founder age looked like it mattered until prior industry experience was accounted for. The caveats are large and the authors state them: the data is French, the cohort is from 2002, exits cannot be separated into failures and voluntary closures, and the matching is imperfect. One exclusion matters especially for an American reader thinking about succession — the sample leaves out family takeovers and management buyouts, which is precisely the route most likely to be available in a small Missouri county. Treat the finding as a caution against the easy story, not as a measurement of your situation.
A tool I disappeared into
A two-page IRS form that makes both sides say what was actually sold
If you buy the assets of a business, you and the seller each have to file Form 8594, the Asset Acquisition Statement under Section 1060. The IRS is explicit about it: both the seller and the purchaser of a group of assets that makes up a trade or business must use it, where goodwill or going concern value attaches or could attach and the buyer's basis is determined only by what was paid.
I am putting a tax form in the tool slot because of what Part II does to a conversation. It makes you break the purchase price into classes of asset — Class I through Class VII — and state a fair market value and an allocated amount for each. Question five then asks whether you and the seller agreed that allocation in writing in the sales contract. You are not permitted to be vague about what changed hands. Cash, receivables, inventory, equipment, intangibles, goodwill: each gets a number, and the two filings are supposed to agree.
That matters in money rather than paperwork, because the allocation drives how fast the buyer can write things off and how the seller is taxed on the proceeds. The two sides want different splits. Doing this at the point of handshake, rather than at the point of filing, is the difference between a negotiation and a surprise. Download the form and the instructions — both free, both short — and read Part II before the first offer, not after.
The obvious limits. This is not tax advice and I am not qualified to give any; get an accountant before you sign. The form applies to an asset purchase, not to buying the shares or membership interests of a company, which is a different transaction with different consequences. And the revision I read is dated November 2021, so check you have the current one.
Learn something
A 2026 survey of people who bought businesses, written by people who invest in them, which says its own sample is a winners' circle
Entrepreneurship through acquisition — buying a company instead of starting one, usually with investors behind you — has a body of published returns data, and in August 2026 three people inside that world published a free paper asking whether it describes anyone's actual experience. Daniel Lazier, Alex Schneider and A. J. Wasserstein surveyed 181 people whose acquisitions had fully resolved, with exits between 2003 and 2026.
Their criticism of the existing numbers is the useful part. The headline returns everyone quotes are cumulative figures across nearly a thousand projects, which describe a population rather than a person; means are lifted by a handful of exceptional outcomes; and the standard multiple-on-invested-capital calculation changes materially depending on whether search capital sits in the denominator, a choice different studies make differently. They describe the usual return presentation as being for the highlight reel.
The dispersion is what I would carry away. The top 10 percent of these CEOs captured 37 percent of all proceeds, with a Gini coefficient of 0.55. Nine of them earned nothing at all and twenty earned under a million dollars, against a median of $6 million. Median cash compensation while running the business was $200,000, a median raise of 31 percent on prior pay — but about 28 percent took a pay cut. And the strongest correlate of what a CEO walked away with was not their ownership percentage, it was the size of the business at exit.
Two disclosures, one theirs and one mine. Theirs: they call their own sample a winners' circle, because people whose acquisitions went badly are less likely to answer a survey, and because the self-funded buyers' downside includes personal debt the survey cannot see. Mine: two of the three authors run acquisition investment vehicles and the third teaches the subject, so they benefit when more people take this route — which makes the candour more notable, not less. And none of this is your situation if you are buying a six-person company in Sikeston with a bank loan and no investors. Read it for the method, and for what happens to the median when a few people do very well.
What we’re seeing
22.1 percent of American business owners bought the business. They did not start it.
The 2017 Annual Business Survey asked the owners of American employer businesses how they got them. Of 4,737,543 owners who answered, 68.9 percent founded or started the business, 22.1 percent purchased it, 7.4 percent received it by transfer or gift, and 4.4 percent inherited it. Owners could give more than one answer, so the shares add to a little over 102 percent. Item non-response on this question was tiny — 23,615 owners — which is unusual for this survey and makes the figure sturdier than most in this pillar.
So a bit over one in five owners bought their way in. That is not a fringe route, and nothing in the ordinary language around business ownership reflects it: we have a whole vocabulary for founders and essentially none for buyers. Entry 003 found the other half of the asymmetry, that most owners heading for the exit plan to close rather than sell. Both things are true at once, and the gap between them is the opportunity — and also the warning, because a business nobody wants to buy is usually a business for a reason.
The same table has a figure that makes the point sharply. Among owners who had previously owned another business, 58.9 percent said that earlier business was still operating and still theirs, 29.5 percent said it was no longer in operation, and only 8.3 percent said it had been purchased by another company or another individual. Hold that number loosely — the reporting base for that question is small, with over three million owners not answering it — but as a direction of travel it matches entry 003 exactly. Businesses mostly end. They are not mostly sold.
I have left out the figures you would normally see in an entry like this, and I want to say why rather than pretend they do not exist. The widely quoted medians for small-business sale prices, revenue multiples and time-on-market come from brokerage marketplaces and broker associations — organisations whose revenue depends on transactions closing. That does not make their numbers wrong. It makes them unaudited numbers published by interested parties about their own listings, which are the deals that went through a broker, not the deals that happened. Entry 003 ran into the same problem with the succession statistics. There is no federal dataset on small-business sale prices, and I would rather report that gap than fill it with someone's marketing.
Also worth knowing from the same survey: 67.0 percent of American business owners had never owned another business before this one. Whatever route they took, founding or buying, most of them were doing it for the first time. The thing entry 004 identified as the real predictor — prior experience in the industry — is not the same as prior experience in ownership, and the survey says most owners had only the first kind at best.
The practical version, for anybody in Cape Girardeau or West Plains weighing this. Buying is a genuine path and the evidence does not say it is safer — once you match on who the buyer is, the survival advantage mostly disappears. What buying actually gets you is existing customers and existing cash flow, which is exactly what entry 007 found nobody has good data on acquiring from scratch. What it costs you is a price, debt service, and whatever is wrong with the business that the seller knows and you do not. Start by making a list of the businesses in your county whose owner is over sixty and whose work you understand, and then ask one of them what they plan to do. Most of them, per entry 003, have not decided.
One question
Is there a business in your county you would buy if the owner offered it tomorrow?
Name the trade, not the business, if you would rather not say. One line.
More in this pillar as it's written.
— Shana
Sources link to the original publisher, never to a summary.