It is of no doubt that the notion of starting a business can be alluring to anyone with an entrepreneurial spirit. However, in reality, creating something that will get traction and prove to be lucrative is never an easy thing. Often it does not work at all. Instead, sometimes the better bet is to buy an established business.
Various reasons support the notion of purchasing an existing business. It is a harsh reality that not every entrepreneur is cut out to run a startup. Sometimes, one has better odds of successfully managing an existing business. Besides that, a startup business goes through several stages: Development, Startup, Growth, and Establishment, and finally, Expansion. It will take an entrepreneur an extended period to go through all phases as compared to an established business where most have already been completed. In most circumstances, the new business owner can skip immediately to expanding the business.
Advantages of acquiring a business
1. Having a business financial history
It gives you an idea of what to expect and can make it easier to secure loans and attract investors. Most of the problems will have been discovered and solved.
2. Immediate business operations
Inheriting an existing company means you will acquire existing customers, contacts, goodwill, suppliers, staff, plant, equipment, and stock. This allows the business to commence promptly.
3. Market share
An established market that has been built for your product or service.
4. Knowledgeable human resources
Existing employees and managers will have the experience they can share.
Disadvantages of acquiring a business
Albeit the benefits of inheriting a business, there are some drawbacks to consider before entrepreneurs take the plunge to buy a business.
1. May require improvements to existing fixed assets
Depending on the duration of the business operations, the business might need significant improvements to old plant and equipment. Thus, new business owners will need to set aside some money for this purpose.
2. Abide or reset outstanding contracts/internal management of the business
New entrepreneurs may face the situation to honour or renegotiate any outstanding contracts the previous owner leaves in place. Besides, the business may be poorly located or poorly managed, with low staff morale. Hence, a revamp of internal management and rebuilding of company cultural will be required.
3. The business may require more investment than expected
Under-performing businesses can require much investment to make them profitable. Therefore, drawing more resources from other business functions and capital.
4. Higher Upfront Purchasing Costs
The cost to launch a business could be cheaper than purchasing one. When an owner buys an existing business while one can save money on operating expenses, such as inventory and equipment, but there are chances to face some hefty purchasing costs.
Additionally, purchasing an existing business may cost more with the customer base, brand, business concept, assets and equipment and intellectual property that comes along with it.
To Begin or Buy a Business
A wise decision to acquire a business is when an entrepreneur can imagine him/herself and the business partners adding incremental value. Rather than enduring the pain of setup and the cost of growth, it is smarter to find an established company which has a history of performance that matches your preferences and can benefit from your expertise.
Financially, a new business entrant would need to deliberate which route would be sustainable in the longer term. Will there be enough cashflow to anticipate rising issues from a startup or to pay extra debts inherited from the past business. These are a fraction of factors to ponder on.
On top of suitability and financial considerations, there are due diligence such as background checks and comprehensive appraisal of a business which interest an entrepreneur and may wish to acquire. This process usually establishes the target company’s assets and liabilities as well as evaluates its commercial prospects.
Yet as compared to a new startup, purchasing a business may still be the lesser of two evils for a new business owner. Building up a company from scratch is a significant risk and will entail loads of stress and long hard hours. Every segment of the business will need to build it up from zero. There are no trained and experienced staff ready to show you the ropes and keep things running smoothly while the new entrant gets settled in.
Buying an established company, on the other hand, may mean the new entrant would need to tweak a few things here and there to have it running the way as desired.
A Fuss-Free Option for Budding Entrepreneurs
Be it starting a new business or buying an established business, there are pros, cons, and its fair share of hassle. Finding relief from such inconvenience can be done effortlessly by contacting an expert. Other than assisting in finding a suitable buyer or seller, there may be better negotiations via a third-party expert.
With more than a decade of experience in company formation, Desfran provides its customers with bespoke solutions to address needs in their operational processes, legal requirements, paperwork, or any other challenges businesses might face during company creation. Known for our excellent planning and forward-thinking, we are equipped with the latest insights to assist new business entrants to find the right business to suit their needs.