Buy a Business

Below are the pros and cons to buying an existing business versus starting from scratch or a franchise.

Pros of Buying an Existing Business

  1. Quicker startup time (business concept, customer base, operations in place) Getting a business off the ground can be the hardest part of starting a business.
  2. Money and energy can be invested into growing the business versus starting from scratch.
  3. Cash flow starts immediately thanks to existing customer base, inventory and receivables.
  4. Pre-existing customer goodwill and reputation. People will already know the business, so the costs of advertising will be less.
  5. You will also avoid the uncertain initial period, where attracting customers to the business can turn into a fulltime job in itself.
  6. Easier to finance, if the business has a positive track record.
  7. A market for the product or service has already been demonstrated.
  8. A business plan and marketing method may already be in place.
  9. Lowers initial staff recruitment and training. Have an existing staff and management.
  10. Knowledge Transfer - learn about running the business from the current owner.
  11. Existing vendors eliminates the need to find, contact and setup accounts with vendors.
  12. Existing premises – may eliminate the need to search for new premises.
  13. With a good business, many of the problems may have been discovered and solved already.
  14. Simpler and safer alternative versus starting a business from scratch.

Cons of Buying an Existing Business

  1. Higher initial purchase cost.
  2. Cost of acquiring an existing business may be greater then starting one.
  3. More cash will be needed to pay for professional fees to purchase: legal, financial, etc.
  4. More cash will be needed for transition cash flow requirements.
  5. Owner may be selling a business with problems. They are now your problems and you many not be aware of them at the time of purchase.
  6. Business may not be as successful as it appears. Business sales, cash flow, profit and assets may be valued higher at the purchase time, but later turn out to be less.
  7. Business may not fit your needs, experience and financial capacity.
  8. More cash will be needed to turn the business around, if the business has been neglected.
  9. Existing contracts, leases or obligations may not be in your best interest.
  10. Existing employees may have problems or good employees may leave with a new owner.
  11. Business goodwill overrated. No guarantee that customers will stay with new ownership.

One of the biggest mistakes you can make is to hurry into business. It is important to review the pros and cons of each business start-up option, and make sure that the business you are exploring fits your needs, experience and financial capacity.