Should You Start From Scratch or Buy an Existing Business? Lessons From Kecia Hielscher and Formulary 55

Buying an existing business gives you customers, products and a track record from day one, but it also means inheriting someone else’s history. Kecia Hielscher’s acquisition of Formulary 55 offers practical lessons for entrepreneurs considering this route.

Key Takeaways

• Buying an existing business can give you customers, products, brand recognition and operating history immediately, but those advantages need to be carefully evaluated.
• Do not judge an acquisition only by revenue. Look at customer loyalty, margins, inventory, cash flow, contracts, reputation and the amount of additional capital the company will need.
• Understand why customers already buy from the company before rushing to change its products or brand.
• The purchase price is only part of the money you may need. Working capital after the acquisition matters just as much.
• Your own experience and skills should influence the type of business you buy.
• Growth opportunities should be evaluated against the company’s long-term strategy, not simply their potential to increase short-term revenue.
• Buying an established business can shorten the startup process, but you still have to build after the acquisition.

Most advice for aspiring entrepreneurs begins with an idea. Find a problem, develop a product or service, write a business plan, find your first customers and slowly build from there.

But starting from zero is not the only way to become a business owner. You can also buy a company that already has customers, products, suppliers, sales history and a reputation in its market.

That route appealed to Kecia Hielscher when she acquired Formulary 55, a Colorado-based bath, body and home fragrance company. Hielscher had spent years working with major consumer companies including Nordstrom, Williams-Sonoma and Disney, but when she decided to make the leap into business ownership, she did not launch a completely new brand.

She bought one that already had something worth building on.

Her experience is useful for anyone asking a deceptively simple question: Would I be better off starting my own company or buying one that already exists?

The answer depends on much more than whether you can afford the purchase price.

Buying an Existing Business Gives You a Head Start, Not a Guarantee

The biggest attraction of buying an established business is easy to understand. Instead of launching with no customers and no history, you may acquire a company that is already producing sales and has suppliers, equipment, employees, processes and customer relationships in place.

The U.S. Small Business Administration’s guidance on buying an existing business notes that buying can simplify some of the initial planning involved in entrepreneurship. At the same time, the SBA advises prospective buyers to look carefully at the investment required, their own skills and lifestyle, and the company’s existing infrastructure, including contracts, leases, inventory and cash flow.

That distinction is important because an operating business can create an illusion of safety. Existing customers and revenue are valuable, but neither tells you whether the company is a good acquisition at the price being asked.

A company can have strong sales and weak margins. It can have popular products but too much inventory, valuable customer relationships but unfavorable supplier contracts, or healthy-looking revenue while constantly struggling for cash.

Buying an existing business means you skip some startup problems. You may also inherit problems that were created years before you arrived.

Look Beyond the Financial Statements

Hielscher found Formulary 55 through a business broker, but she was not searching only for a specific type of company. She was looking for the right opportunity.

Naturally, the numbers mattered. What stands out from her explanation, however, is how much attention she paid to things that were harder to represent neatly on a spreadsheet.

She looked at customer loyalty, product quality, brand equity and opportunities the existing owner had not yet fully captured. She believed Formulary 55 already had a strong foundation but also saw places where her background in retail, merchandising and product development could make a difference.

That is a useful way to think about an acquisition.

Financial statements tell you what has happened. A potential buyer also needs to understand why it happened and whether the conditions that produced those results are likely to continue.

Is revenue concentrated among a handful of customers? Are customers loyal to the company or to the current owner personally? Which products actually make money? Is inventory moving consistently, or is much of it sitting unsold? Does the company’s reputation create a competitive advantage, and would customers stay after ownership changes?

StartingUpTips has long emphasized the importance of knowing what you are getting into before starting a business. That advice becomes even more important when you are putting money down to purchase a company with an existing history.

Don’t Skip Market Research Because the Business Already Has Customers

An established company gives you something a startup does not have: evidence that people have been willing to buy.

That does not mean market research is finished.

The SBA recommends looking at factors such as demand, market size, competitors and the characteristics of potential customers when evaluating a market. Existing businesses need that information just as much as startups because customer preferences, competitive threats and market conditions can change. The SBA’s market research and competitive analysis guidance is a useful starting point for this process.

For an acquisition, you can go further because you have actual customers to learn from.

Look at what they buy, what they purchase again, which products receive complaints and which ones they would miss if they disappeared. Talk with customers where possible, review customer-service issues and pay attention to what retailers, distributors or other partners say about the company.

StartingUpTips discusses why this kind of input matters in Why Feedback Is Important for Your Startup Business. The point is not to blindly follow every suggestion a customer makes, but to understand what the market values before making decisions based entirely on your own assumptions.

Figure Out What You Should Not Change

Buying a business can create an understandable urge to start fixing things.

You have ideas. You see opportunities. Perhaps you have been waiting months for the deal to close and already have a mental list of everything you want to redesign, replace or discontinue.

That enthusiasm can become a problem if you do not first understand what customers already value.

When Hielscher took over Formulary 55, one of the questions she asked was, “Why do customers already love us?” She identified the company’s authenticity, craftsmanship, fragrances and tactile product experience as qualities that were worth protecting.

At the same time, she saw opportunities to strengthen product development, improve the design and make the brand more cohesive. The goal was not to make Formulary 55 unrecognizable under its new owner, but to make the existing business better.

That balance deserves more attention than it usually receives in discussions about acquisitions. You are buying a company partly because something about it already works, so changing everything immediately can destroy part of what you paid for.

PowerHomeBiz looks more closely at this side of Hielscher’s experience in What Buying Formulary 55 Taught Kecia Hielscher About Growing an Existing Brand. Her approach is particularly useful for entrepreneurs buying a company where brand reputation, repeat customers and product identity make up a significant part of its value.

Don’t Spend Every Dollar You Have on the Purchase

Aspiring buyers naturally focus on one big number: the price of the business.

That is only the beginning.

Once the acquisition closes, the company still needs cash. Employees need to be paid, inventory needs to be replenished, suppliers need deposits, equipment may break and marketing does not suddenly become free because the company existed before you bought it.

This is where a business that looks affordable on paper can quickly become expensive.

Hielscher learned how interconnected these decisions are after taking ownership of Formulary 55. Production, inventory, sales, people and cash flow all affect one another, which means a seemingly small decision in one area can create pressure elsewhere.

One of her later lessons was particularly important: watching the profit-and-loss statement was not enough. She now says she reviews the P&L monthly while looking at cash flow at least weekly and maintaining a cushion for unexpected expenses.

That distinction matters because a business can show a profit while still being short on the cash needed to pay current bills.

StartingUpTips offers practical ways to address this in Grow Without Borrowing, including monitoring cash flow, using profits carefully and controlling the timing of money coming into and leaving the company. Our interview on construction payment delays and cash flow also illustrates the broader point that profitability on paper does not automatically mean a company has enough cash available to operate comfortably.

If you are considering an acquisition, determine how much money you need after the purchase, not simply how much you need to complete it.

Leave Room for the Unexpected

Financial projections tend to look clean. Real businesses rarely cooperate.

Equipment breaks. A supplier increases prices. A major customer orders less than expected. Inventory arrives late. A marketing campaign disappoints. An employee leaves at the worst possible time.

Hielscher experienced this herself when two early marketing investments failed to generate the returns Formulary 55 expected. One involved a large niche magazine, while another involved a monthly sample-box company.

Those experiences changed the way she evaluates spending. She began asking whether a proposed marketing investment was really the best use of the dollar or whether that money would create more value in raw materials, employees, product development or another part of the company.

That is a useful discipline for a new owner because acquisitions often create a long list of things that seem urgent.

Instead of asking only, “Can we afford this?” ask, “Compared with everything else we need right now, is this where the next dollar should go?”

StartingUpTips’ guide to starting a business on a shoestring budget makes the same broader point: limited capital forces entrepreneurs to prioritize spending. An acquisition may involve more money than a traditional bootstrapped startup, but the discipline is the same.

Your Skills Should Influence What Business You Buy

A profitable business is not automatically the right business for you.

Before purchasing a company, think about what you personally bring to it. You do not need to know every aspect of the industry on day one, but your experience should give you some reason to believe you can maintain or improve what you are buying.

Hielscher’s career made Formulary 55 a logical fit in ways that another acquisition might not have been. She understood consumers, merchandising, product development, retail relationships, branding and how premium companies think about the customer experience.

Her background did not guarantee success, but it meant she could look at Formulary 55 and see opportunities she understood how to pursue.

LearningFromBigBoys examines this side of her story in From Nordstrom to Formulary 55: Big-Company Lessons Kecia Hielscher Uses to Run a Small Brand. The article looks at which practices she carried over from companies such as Nordstrom, Williams-Sonoma and Disney, and why small businesses should borrow the discipline of bigger organizations without copying their bureaucracy.

The SBA also tells prospective buyers to consider their own talents and lifestyle when deciding whether an existing business is the right route. That may sound like soft advice compared with analyzing financial statements, but it matters.

You are not simply buying an investment. In many small businesses, you are also buying yourself a job, a schedule, a set of problems and an industry you may spend years working in.

Remember That Some Value Doesn’t Show Up as Equipment or Inventory

A business acquisition can include obvious assets such as inventory, machinery, vehicles, furniture or real estate. It can also include less visible assets that may be just as important.

Customer relationships, trademarks, systems, supplier relationships, reputation and goodwill can all have value. They can also make the transaction more complicated than simply adding up the resale value of everything in the building.

The IRS treats certain business acquisitions differently depending on the assets being purchased. For qualifying asset acquisitions where goodwill or going-concern value is involved, both buyer and seller may have reporting obligations involving IRS Form 8594, Asset Acquisition Statement Under Section 1060. The IRS instructions specifically identify items such as customer-based intangibles, supplier-based intangibles, trademarks, trade names and goodwill among the assets that can become relevant in an acquisition.

That is one reason a serious acquisition deserves professional accounting and legal advice.

The structure of the transaction can affect taxes, liabilities and what the buyer actually owns when the deal closes. A buyer should understand those details before signing, not discover them afterward.

Don’t Assume Bigger Is Always Better Once You Own It

Many entrepreneurs buy a business because they believe they can grow it. That is reasonable, but growth itself needs a strategy.

Formulary 55 offers an interesting example because the company could potentially pursue much wider distribution. Hielscher has instead focused heavily on independent boutiques, specialty retailers and spas, where the way customers discover the products supports the brand she wants to build.

She has also turned down opportunities that could have produced meaningful short-term revenue when she believed they were not right for the brand over the long run.

This matters for a new owner because there can be tremendous pressure to prove the acquisition was a good decision. Rapidly increasing revenue feels like proof, but pushing a company into the wrong channels, cutting prices too aggressively or overextending inventory can create problems that take much longer to repair.

Your first goal after buying a business does not have to be making it dramatically bigger.

A better first goal may be understanding exactly how the company makes money, where customers see value, which relationships matter most and where growth can happen without weakening the business underneath it.

Don’t Underestimate What You Already Know

There is another part of buying a business that does not show up in acquisition spreadsheets: confidence.

People who have spent years as employees can convince themselves that becoming an owner requires an entirely new set of abilities. Some new skills are certainly necessary, but that does not mean everything learned in a previous career becomes irrelevant.

Hielscher believes experienced professionals often underestimate just how transferable those years can be. Managing employees, dealing with customers, solving problems, negotiating difficult situations and making decisions all remain useful when the company belongs to you.

She also admits that she initially spent too much time feeling as though she needed to know everything before making certain decisions. Looking back, she says she would have trusted herself sooner.

Her more personal transition from corporate executive to entrepreneur is the focus of the full WomenHomeBusiness interview, Kecia Hielscher on Leaving Corporate Life, Buying Formulary 55 and Betting on Herself. It is especially worth reading for anyone considering entrepreneurship after spending many years working inside larger organizations.

You will have things to learn as a business owner. That is different from starting with nothing to offer.

Buying a Business Still Means Building a Business

There is a temptation to think of buying an existing company as the faster or easier alternative to starting one.

In some ways, it can be faster. You might open the doors on your first day as owner with products ready to sell, customers already ordering, employees doing their jobs and revenue coming in.

But you also take responsibility for everything that already exists.

You inherit the company’s strengths and weaknesses, the expectations of its customers, the decisions made by the previous owner and whatever financial or operational problems are waiting beneath the surface. Then you have to decide what to preserve, what to improve and what needs to change.

Hielscher did not have to build Formulary 55 from zero. She still had to build.

That is probably the healthiest way to approach an acquisition. Do not buy a business because you expect someone else to have completed all the difficult entrepreneurial work for you.

Buy one because the foundation is valuable, the numbers make sense, the risks are understandable, your skills fit the opportunity and you can see a credible path for making the company better than it was when you found it.

Frequently Asked Questions