Starting your own business can be a lengthy process as you spend time and money establishing your own company. Buying an existing company can be a quicker and easier process, although it can have disadvantages. It’s important to spend time and effort searching for a business which is right for you. Although a business is already established, you will find that the costs of buying an established business are substantial and should be planned for carefully.
Buying a company which is already established makes good business sense. However, you are inheriting the legacy of the previous owner so you should be aware of all aspects of the business so that you know what you are taking on. There are many advantages to buying a business which is already established, as you will find that the groundwork has already been done to get the company up and running. Obtaining finance for the business may be easier as it will have a proven track record. The service or product which is being sold will already have a market, so there is less of a risk.
Purchasing an established business may mean that it has a regular customer base, a regular income, an established reputation and contacts. The company will already have a business plan in place, with a marketing strategy that works. Any existing employees of the company will have knowledge and experience that you may find invaluable in the early days. Any problems which existed should have already been dealt with, leaving you to run the business.
Although a number of advantages exist when buying an established business, you also have to be aware of disadvantages. The main disadvantage is that you will pay a lot more for a business which is already up and running. You will also have to allow for the cost of solicitors, accountants, surveyors and professional fees. Although the business is a going concern, you will still need capital for a number of months to help with cashflow.
Once you have purchased the business you may have to invest more time and money to deal with any areas of neglect, or areas which can be improved significantly to gain a high chance of success. You will also have to honour any contracts which were agreed by the previous owner, or even renegotiate. Before purchasing an existing business, find out why the owner is selling up as this could have an impact on the business when you take over. Consider any existing workforce and whether you are prepared to deal with low staff morale or other possible problems, as this could affect business performance, especially if the employees don’t feel happy about someone new taking over the business.
Although buying an existing business may seem like the ideal solution to running your own business, there are certain aspects that should be considered carefully before going ahead with the purchase. Look at the skills and abilities you are taking to the business: do you have the knowledge and skills required to develop the business? Consider the amount of capital required as you may need to invest a substantial sum of money. Make sure that your expectations are realistic and that the business can live up to them. Although the business is already established, you will need to commit time, finance and effort to the continued growth of the business.
There are other areas to be considered before purchasing an existing business, like due diligence. It is advisable to seek professional help for due diligence as the three types of due diligence are complex. Once you have agreed a price and terms with the seller, you should consider legal due diligence, financial due diligence and commercial due diligence.
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About The Author
An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.