Is Buying an Existing Business a Smart Move?

Is Buying an Existing Business a Smart Move?

by Heleigh Bostwick, September 2009
So you want to go into business for yourself, but aren't sure whether to start your own business or buy that café you've been eyeing. If this sounds like you, here's what you need to help decide whether buying an existing business is a smart move.

The Pros

The main advantage of buying a successful existing business is that there's usually an existing business model in place, particularly if it's been around at least five years.

Other advantages include the following:

1. The product or service has already succeeded in the marketplace.

2. There's an existing customer base.

3. Policies, procedures, and business models are already established.

4. Staff is comprised of well-trained brand ambassadors.

All of these inherited assets can allow you to invest more time in essentials like marketing and enhanced customer service. What's more, financing is often easier to secure for an established business rather than an entirely new business.

The Cons

One of the disadvantages of buying an existing business can be the difference between the dream and the reality. While you may salivate at the thought of operating a trendy little downtown café, a lack of any related business experience on your end may turn the dream into a nightmare.

Other disadvantages to consider:

1. The cost of purchasing the business, plus legal and accounting fees for the transition will likely exceed those of starting a new business.

2. Trained staff. The same advantage can be a disadvantage if you inherit disgruntled workers. They may also feel resentment about a new boss coming in and "changing the system."

3. Customer base. While there may be one, it doesn't necessarily mean that it's in great shape or that customers will trust the new owner. If the business has been coasting for a couple of years and its reputation has been on a downswing, then new owners may have a lot of hard work ahead of them in retaining and getting new customers.

4. Finances. Do you have the finances to keep the business running if profit is less than you expect? Consider every expense—including your paycheck—and take a close look at annual revenues. Are they rising every year, remaining flat, or going downhill? And will you be able to wait it out if the change of ownership results in a dip in revenue?

Review inventory, as well as policies, procedures, and any outstanding contracts as they could be outdated or obsolete, requiring significant amounts of time or money to get them up to speed.

Situations will vary depending on the business you're considering and how much of a personal touch you want to put on your business. Only you can decide whether buying an existing business is right for you, but weighing out these pros and cons can get you on the path to making the right decision.