Should you Buy an Existing Business?

When we think about going into business for ourselves usually we are thinking about starting from scratch. We may have a special product in mind, or perhaps a unique service. But sometimes an opportunity comes along where an existing business is for sale, and the chance is hard to pass up.

When you buy an established business you don’t have to spend a lot of time with start-up activities, such as getting equipment, acquiring the various licenses, etc.; there is a considerable amount of savings in time and energy. You will also have immediate cash flow because the business already has inventory, receivables, and clients. In addition, you will have goodwill and name recognition, and this will probably make it easier to obtain financing.

But one serious disadvantage is the cost of acquisition. You may have to come up with a large amount of money because the previous owner has already done the basic work. He or she has already bought the equipment, developed the business concept, acquired licenses and permits, developed a customer base, hired and trained employees. You may also get unexpected baggage. Perhaps the equipment is old, or there are ornery employees that have nowhere else to go. It is also possible that instead of goodwill, you are getting a bad reputation attached to the business, and it may be difficult to overcome. Another issue to consider, depending on the type of business, is environmental problems that can be costly to resolve.

There is much to think about, and significant matter on both sides, so weigh the pros and cons very carefully before you decide to acquire an existing business.