A person can start a business from scratch and build it slowly or opt to buy an established, already existing business. There are several advantages and disadvantages to purchasing a business. Make sure you know about every aspect of the business that you intend to purchase. Below are lists of the advantages and disadvantages of purchasing a business.
Advantages
The business will already be up and running saving the time, energy, and research needed to start a business. It involves just a single transaction rather than filing forms with different government agencies.
Applying for fiscal aid will be easier as the business will have a proven record of accomplishment.
The business plan will guide you to run the business initially until you have learned enough to make corrections or alterations where necessary.
The premises for the business and lease negotiated are already established.
You will gain insight from the previous owners’ experience and expertise.
An experienced and reliable staff, which knows how to run the business, is already working for you.
Suppliers and dealers have already been dealing with the business and, on request, will continue to do so.
An established market for the product as well as an established customer base will be an added advantage.
Reliable income, reputation, and a great network of contacts are already there.
Easy immediate cash flow because of existing inventory and receivables.
DISADVANTAGES
The business may have many hidden problems that could be hard to solve.
Employees may leave due to the change, or not perform due to resentment.
Receivables included in the deal and paid for may turn out to be non collectable.
It may cost a large sum of money to buy a business taking into consideration fees for solicitors, surveyors, and accountants.
You will have to honor any contract signed by the previous owner.
Plant and equipment may be obsolete or in need of costly repairs or maintenance.
The lease negotiation may be a problem due to bad relationships with the previous owner.
The premises may be too small to ensure growth and expansion of the business in the future.
The business may have had a bad reputation that shall be hard to change.
These are some of the advantages and disadvantages of purchasing a business. It is necessary to take certain precautions while purchasing a business such as the reason for the sale. Study the sales patterns, trends, customer base, and current suppliers. Consider the costs, profits, cash flow, assets, liabilities, the taxes and the legal issues. Make sure you seek guidance from a solicitor, accountant, and lawyers to make the right decision.
Additional Help
Many firms offer software to aid people in buying and running a business. This helps you to run your business in a legitimate manner. Much of the software is designed with small business owners in mind and comes at an affordable price.
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site smallbusinessconsultingdotcom