Why Should I Buy an Existing Business?
Buying an existing business has many advantages and a few disadvantages. Let’s take a look at both sides of the equation.
Advantages of Buying an Existing Business
- Risk is Low – When you purchase an existing business, there is a history of performance that can be evaluated. Financials, such as tax returns and profit and loss statements will give a clear picture of the risk involved.
- Brand Recognition – A company that has existing vendor and customer relationships, a marketing and advertising plan in place will give you a head start in establishing the brand.
- Start Work Now – You can hit the ground running when you buy an existing business and start implementing, improving and growing the business without any start up delays.
- Trained Staff – The people that work for an existing business are some of the most valuable and crucial assets. Not having to hire and train a new staff gives you a leg up to then implementing growth strategies.
- Asset Transfer – An existing business will normally come with assets that are integral in running the business.
- Positive Cash Flow – Acquiring an existing business is a good way to have an immediate positive cash flow. When a sale is structured it is usually done so in a way that the debt can be covered, a reasonable salary obtained and some reserve to help take the business to the next level.
- Training from Previous Owner – Having the existing owner train you on the integral workings of the business, making introductions and help make the transition as smooth as possible is another big advantage to purchasing an existing business.
- Owner Financing – One of the many ways to finance a business includes owner financing. The seller may agree to financing a portion of the purchase price.
- Higher Success Rate – It’s a simple fact that a huge percentage of first time start up business fail. Acquiring an existing business can be safer than starting up a new business due the shear amount of time the existing business has been operating.
Disadvantages of Buying an Existing Business
- Major Improvements Needed – Equipment or other major improvements to an old facility may be needed which could result in a significant amount of additional investment on your part.
- Upfront Costs – To purchase an existing business, you often need to invest a large amount of money up front, and will also have to budget for professional fees for attorneys and accountants.
- Business Downfalls – The business may be in a bad location or previously managed poorly, with low staff morale.
- Future Issues – There may be external factors, such as increasing competition or a declining industry, which can affect future growth.
- Additional Investment – An under-performing business may require a lot of additional investment to make it profitable. This investment may come in the form of time, money or both.
- Previous Owners Relationships – The seller’s personality and their established relationships may be a major factor for the success or the failure of the business in the future.
If you have any additional questions about whether you should or shouldn’t purchase an existing business, please contact a Certified business broker.
Cress V. Diglio, Florida Business Broker
Cress V. Diglio is a Certified Business Intermediary (CBI), a Merger & Acquisition Master Intermediary (M&AMI) and the Past Chairman of the International Business Brokers Association (IBBA).
Whether you are looking to buy a business, sell your business or merge with another business, Florida Business Broker Cress V. Diglio has the experience to assist you in all facets of the transaction. Call Cress today for complete transaction support and expertise, 888-984-4208, or visit https://floridacertifiedbusinessbroker.com.