Many people dream of owning their own businesses. Some prefer to start up from scratch while others prefer buying an already running business. Whether you want to start your business from the ground up or want to purchase an existing one, just know that both have their challenges.
In this post, we’re going to look at pros and cons of buying an existing business. On the outside, a business may look great but in the real sense, it may be having issues. So, before buying an existing business you need to scrutinize it and weigh whether it is a good investment or not.
Here are the pros and cons of buying an existing business:
Pros of buying an existing business
- You won’t have to start from scratch
Starting a business from scratch is no joke as there are a lot of things that need to be done. From coming up with a business plan to registering the business to marketing your products/services, it is not an easy road.
But with an already established business, you will be able to start selling immediately as everything is in place. You won’t have to try to hire employees, find suppliers, buy inventory, and rent a store.
Unlike a startup business, an existing business will have employees, suppliers, customers, and much more. Therefore, things will be much easier for you and may need to do a handful of things such as adding a few employees, remodelling the business, or upgrading the equipment.
- The product or service being offered is already tested
Since the business is in existence, you should be able to know how the customers around have received the products or services. From your own research, you should be able to tell if the products have been received warm-heartedly.
Also, you should have a rough idea of the sales that the business makes in the area.
So, before you venture into any existing business, you need to do thorough market research and find out if the business is profitable or not. This will also help you know how to market your products or services going forward.
- Getting finance is quite easy
If the business is fully established and running, it will be easier to get traditional financing. This is because lenders consider things like revenues, profits, and other financial statements to determine the viability of a business.
Besides, if the existing business is performing well, it will increase the chances of the lender awarding you a loan as the risk is greatly reduced.
But when you start a business from scratch, securing a loan from lenders is usually challenging due to the high risks involved.
- An existing customer base
For any business to be successful, it needs a loyal customer base. So, if you buy an existing business, you will assume the customers of the former owner. The existing customer base will continue to purchase from you.
This is totally different from a startup where the business owner has to market the products or services being offered. Therefore, in this case, the soiling and toiling are already done for you and you can only grow on it.
- Turn it into a profitable business
Buying an existing business has many advantages and this is one of the biggest. Unlike a new business where you’ve to do the hustling from start, an existing business has everything set for you. Instead of wasting time developing the business and looking for customers, you will pay more focus on increasing sales and revenue.
Some startup business takes months or even years before they realize profits. But in this case, if you inherit a healthy business, you will receive profits in the first month of possession.
- Many healthy practices are already in place
When you start a new business, you will have to set policies and create a culture that employees should follow. But when you buy a business from another individual, the transition will be smooth as you can assume the business policies and practices.
Implementing new policies can be quite challenging as it may take up to 8 months.
- An already established brand
Creating a brand is not easy, especially in a crowded marketplace with a lot of competitors. Many business startups find it hard to develop their brand and draw attention to the products and services that they offer.
But with an existing brand, you will inherit their brand as well as their market share. So, you will not struggle so much to make your brand known as most of the work will be already done for you. This reduces the risk involved with starting a new business as you don’t know how the market will receive your brand.
- Work on the growth of the business immediately
With so much work already done for you by the former owner, there will be little for you to do. Therefore, you won’t have to waste much time trying to grow the business but you will focus more on improving the business.
Also, you will have enough time to improve on the weak areas of the business, instead of trying to grow it as with a startup.
Cons of buying an existing business
- A lot of changes may be needed
People lie to get what they want. As a result, you may buy a business only to find out later that it is not what you paid for. The business may have some hidden challenges that it’s facing and you may not know about them until you’re in the operating seat.
Some of the things to look out for before buying an existing business are existing debts, staffing issues, poor equipment, and unreliable suppliers.
Another huge challenge is when you try to implement new policies, procedures, and culture within the business. In most cases, employees will retaliate and try to stick to their previous policies or regulations.
This might take a lot of time before they accept the new changes and adapt to them. That’s why you need to do thorough research and find out more about the business before attempting to acquire it.
- You get what you pay for
If you find out that existing business is being sold at a throw-away price, then you should think twice before buying it. No person can sell a well-performing business at a low price. And because of this, you should consider the cost of starting your own business instead of purchasing an existing one.
This is because you may just end up saving money instead of buying a business that has a tainted image or with products or services that have been turned down.
- You may be hoaxed
Apart from buying a business with lots of problems, you may be tricked by unscrupulous sellers. There is a high chance that the previous owner may have failed to repair some equipment or didn’t know how the whole business operated.
In order to prevent this from happening, visit the business and do an inspection. Also, go through the legal documents and even finance records to be certain. Don’t take any chances or you will be sorry when it’s too late.
- The existing business may have a bad reputation
Scrutinize the business before presenting the final offer. If a business has a bad reputation with the customers, community or even suppliers, you need to know before taking over.
This might affect your sales and even growth in the long run. Even with new management, changing a negative outlook on a business can be very hard and it might take time before the negative perception goes away.
- Changing the business into your own can be challenging
After buying an existing business, you will definitely want to change it into your own. However, this takes time as it was someone else’s idea and vision. You will have to be patient in order to achieve this and it might cost you both time and money.
In some scenarios, the business may never feel likes it’s yours and that’s why starting your own business is at times better than assuming one.
Conclusion
If you decide that you want to purchase an existing business instead of growing one from scratch, then you should determine whether the business you’re buying is viable or not.
Examine the business carefully before making up your mind. With the pros and cons that we’ve highlighted above, this should be easier for you. Ensure that the cons don’t outweigh the pros.