Buying an established business has many advantages but is not without risk. You will need to know the advantages and disadvantages of buying an existing business and know your strengths and weaknesses as a business owner.
Advantages of buying a business
Buying a business is generally less risky than starting your own business. You can buy a well-managed, profitable business for the right price. The advantages are clear:
- The difficult and expensive start up work is done. This is a significant savings in time, energy and money.
- The business should have plans, policies 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 sometimes, 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 sell unprofitable or under-performing businesses. While this can be a chance to buy and develop a cheap business and build an asset, it can also be a risky investment. The disadvantages are different from one business to the next. Here are some examples:
- The business may need major improvements to old plant and equipment.
- You may need to invest a large amount up front.
- The business could be poorly 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.
Each business opportunity will have a different set of advantages and disadvantages. Identifying them and how your skill set can contribute to growth will need to be evaluated on a case by case basis.
Working with a Business Broker can help you find the best the business for you. A Business Broker will have access to Industry research, knowledge of the local business community and an insiders perspective.
To look at a business with a professional, contact Larkspur Business Brokers.