If you want to start your own business, you can choose to start from the ground up or buy an existing business for sale. Buying a business that is already in operation has advantages and disadvantages. In order to make a smart decision, you will need to understand these pros and cons first.
Benefits of an Buying an Existing Business
Buying an existing business, in most cases, is often less risky than having to start from scratch. By purchasing a business that already exists, you will inherit an operation that is already generating cash and even profits. At the same time, you also have a customer base that is already established, employees who are familiar with the business aspects as well as business reputation. Above all, you won’t need to reinvent the wheel- putting in place new systems, policies and procedures- because the former owner has put a successful formula for running that business in place. Some of the added benefits of buying an existing business are:
Proven track record
Existing and thriving businesses tend to have proven track records of generating profits, which is likely to continue when you buy it. By incorporating your new ideas, a renewed energy and expertise it is possible to make your business be even more profitable.
Established customer base
An existing business for sale tends to have an established customer base, which can ensure immediate cash flow. Upon acquiring the business, you do not have to go through the difficult start-up period of identifying and developing a customer base to meet your requirements. You can use these existing clients as the building blocks for your business to grow in the future.
If you buy a business that is already thriving, it is likely to continue operating profitably for several years to come. In fact, the success rate of a person buying an existing business is higher compared to that enjoyed by people starting from scratch. It is primarily because an existing successful business has proven already its mettle. All you need is to continue following the basic approach of business and you will no doubt operate successfully too.
When starting a business from scratch, there are many challenges that will be encountered along the way. This, however, is not the case when it comes to purchasing an already existing and successful business. Simply put, majority of problems that many ventures tend to undergo have not only occurred but have also been resolved.
The drawbacks associated with buying an existing business The attraction of buying an existing business, at times comes with its own set of challenges. The most common of these is that it is very expensive since you are buying a business that is already doing well. It means that you need to have enough capital just to acquire the business. Without a huge capital there is nothing you will be able to achieve later. Some of the other drawbacks associated with buying an existing business are:
- The cost of buying the business, coupled with accounting and legal fees, can easily exceed the cost that you would need to put up a new business.
- While there is the chance of inheriting trained staff, it can be a huge disadvantage if you inherit disgruntled workers as well.
- There will always be a concern about some employees harbouring resentment towards a new owner coming in and then changing the system.
- There is no guarantee that the existing customer base will be in great shape or that clients will trust and work with the new business owner. If you buy a business that used to be on a roll but have recently experienced a slump in its reputation, you will have to do a lot of work to not only retain the reputation but also get new clients on board.
- You must have the financial resources that the business requires to run if the profit is not as much as you expected. It is important to consider every expense and this even includes your own pay-check. Also, scrutinize the annual revenues. Do they increase every year or are they flat or declining? You also need to consider if you will be able to wait the business out should an ownership change lead to a decline in revenue.
How Do You Identify the Right Business for Sale?
First and foremost, you need to establish if you are truly ready and motivated enough to buy and run an existing business. Before you make a final decision it is always good to ask yourself the following questions:
- Are you aware of the type of business that you are about to buy?
- Do you have the technical qualification and enough experience needed to run that business?
- Are you prepared to commit a lot of time that the business may require?
- Do you have temperament to enable you handle the fickle customers, difficult employees and demanding creditors?
- Will you be able to deal with the business’ bookkeeping requirements?
- Do you possess the attention to detail some businesses require?
- Will you be able to handle uncertainty and still maintain your cool?
- Are you personable, i.e. be able to deal with both employees and customers successfully?
Irrespective of the circumstance, it is essential to take into account the various considerations before reaching the decision to buy an advertised business for sale or start one from scratch. After analysing the benefits and drawbacks and finding the answers to the questions above, you will be in a much better position to make a smart move.
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