Starting a business from the scratch can seem intimidating. A first-time business owner can get discouraged by the fact that you have to build a completely new customer base, develop marketing techniques, hire employees, establish cash flow and get adequate funding for the business which can be a challenge in itself without a previous track record.
In order to avoid these problems, one can buy an existing and established business or a business model (like a franchise).
Many experts will tell you that buying an existing business is less risky than starting a new business, as long as you do it after evaluating the business on its assets, financial reports, annual profit, cost of running the business etc.
Advantages of Buying a Business
If you are able to find a good and sound business to buy, it is usually less risky because you are taking over an operation that’s already (and hopefully) generating an profit.
- An existing business already has a customer base, reputation as well as employees.
- There is likely to be a marketing strategy in place as well as necessary business relationships with suppliers and distributors.
- You will not have to reinvent every aspect of the business such as setting up new procedures, systems and policies.
- You are already purchasing a successful business model.
- You do not have to look for experts and professionals to hire.
- Any employment need is probably already fulfilled by existing employees.
- Existing employees already know how the business works and do not require additional training unless you are planning to bring about changes in the business.
Disadvantage Of Buying An Existing Business
Cost is a major dis-advatge of buying a running and a functional business, even though you avoid a lot of other costs in the leg run.
When starting out yourself and building a business for yourself, you have the option of starting small. Some of the biggest corporations today have started out as one room operations.
However, lending institutions are more willing to give a loan for the purchase of a business which has a proven track record. When you buy a business unit you will also purchase valuable legal rights such as patents, copyrights which in themselves are profitable commodities.
Evaluating A Business Before Buying
However, as we pointed out right in the beginning of this post, the success and the risk of buying an existing business depends upon having carefully evaluated the business, having taken professional help and advice from your attorney, accountant and other professional business appraisals.
In most of the cases of buying an existing business you will definitely need the help of such professionals to evaluate the true worth of a business.
Not doing so could result in you getting stuck with obsolete inventory, and corporate employees or outdated distribution methods.
In the next few post we will talk about how to buy a business successfully.