What are the advantages and disadvantages of buying over an existing business that I am not familiar with? Originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Buying an established business rather than setting up a new business has many advantages but is not without risk.
Advantages of Buying a Business
Buying a business is generally considered less risky than starting your own business, especially if you can buy a well-managed, profitable business for the right price. Consider these advantages:
- The difficult start-up work has already been done. The business should have plans and procedures in place.
- Buying an established business means immediate cash flow.
- The business will have a financial history, which gives you an idea of what to expect and can make it easier to secure loans and attract investors.
- You will acquire existing customers, contacts, goodwill, suppliers, staff, plant, equipment and stock.
- A market for your product or service is already established.
- Existing employees and managers will have experience they can share.
Disadvantages of Buying a Business
Keep in mind that not every business on the market is a good prospect. Many owners will be selling unprofitable or under-performing businesses. While this can be a chance to buy and develop a cheap business, it can also be a risky investment. Consider these disadvantages:
- You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors and accountants.
- The business may be poorly located or badly managed, with low staff morale.
- External factors, such as increasing competition or a declining industry, can affect future growth.
- Under-performing businesses can require a lot of investment to make them profitable.
- The seller’s personality and their established relationships may be a major factor for the success of the business.