Buying an existing business requires asking the right questions and knowing what you need to know about the business. There are advantages and disadvantages of buying an existing business versus starting a new business.
Advantages: When you buy an existing business, you get a proven track record, a business in existence, one with a history, a product or service that has already been tested and marketed, a trained staff of employees and policies and procedures that are already in place. Buying an existing business reduces the uncertainty of customer demand as a customer base has been established. Another time and money saver is the fact that furniture, fixtures and equipment is in pace; someone has already performed the tasks involved in establishing the business.
Buying an existing business over building a business from scratch has its advantages; you already have a marketing plan in place, policies and procedures have already been established. You get to enjoy the advantage of reduced start-up work and less risk of failure if there is no market demand for your product of services. Building a customer base is one of the largest challenges a newly established business faces.
Disadvantages: There are possible pitfalls to buying an existing business. One of the biggest ones to consider is the risk of suffering from misrepresentation; it is not always in the best interest of the seller to tell you if something is going wrong. This information is very crucial to the purchaser. Remember that people who are selling a business are involved in one of the largest transactions they will be involved in during the course of their life.
When you buy an existing business, you are paying a price based on the value of the entire package, as shown on their financial statements. They could have obsolete inventory on their books that indicates a value of what it was worth back when they acquired it.
Though having a trained staff in place is listed as an advantage, it can also work against you. What is attitude of the existing employees? How do they feel about suddenly being under the direction of a new boss? How will they feel about changes you may want to make, especially if specific businesses practices are outdated? Will employees continue to be as productive when you take over? If not, then your revenues can decrease significantly.
Whether you choose to buy an existing business or create a new business, remember to do the necessary research and to educate yourself. Remember, this will be one of the largest financial transactions that you will be involved in; consider hiring a professional, a CPA, attorney or business consultant to analyze the business and the transaction. This could save you a lot of money in the long run.
Bill Bartmann has started 7 businesses in 7 industries. Through his business experiences he has learned a lot; Bill Bartmann shares everything he knows about business ownership and success with his online course, Billionaire Business Systems.