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Should I buy an existing small business?

You’ve decided you want to become a small business owner. The next question you need to answer is: do you buy an existing business or start one from scratch?


Both have their pros and cons. Of course, the path you eventually decide to traverse will depend on your experience, the type of business you want, and how much risk you are willing to take.

Buying an established small business is generally considered a safer route, but it is not without its drawbacks. Below, we highlight some of the pros and cons of buying an established business.

PROS

  • Less risk than starting your own business - Starting a business from scratch is risky and there are chances it could fail, which can be quite stressful for those with little or no experience. On the other hand, with an existing business, the success of its product or service has already been tested and there are established systems in place. The challenge will be building upon what is already there and taking the existing business to the next level.
  • Business structure already in place - When you buy a small business, you can hit the ground running, as the structures and procedures are already in place. In addition, when you buy an existing business, you may acquire a substantial database of potential customers, suppliers, equipment, and staff. Should there be existing premises, you won’t have to search for a new site or negotiate a new lease. Moreover, if the business comes with existing employees, they will already be trained and have experience they can share with you. This will save you a lot of time and resources, and you can turn a profit sooner than you would with a new start-up.
  • Financial advantages - From a financial perspective, an established business with a successful track record will make it easier for you to secure loans and attract investors. If you do your research and due diligence, you can buy an established business for a good price, thereby reducing the risk of making a bad purchase.

CONS

  • Problems with existing systems - While inheriting established systems and structures can be an advantage, it can be a disadvantage if they turn out to be poor in quality. For example, there may need to be major improvements to old equipment and outdated technology and this can be costly.
  • Poor culture - A business may have been poorly managed, with low staff morale, and this will create added work for you as the new owner. Similarly, there is a possibility that staff may not be happy with a new boss or that they are not the right fit for you.
  • Existing business could be underperforming  - Another potential disadvantage is if a business is underperforming, which could be due to poor management, increased competition or a declining industry. This will require a lot of investment, time and effort to help turn the business around. The key is to do your research, find out why the business may be underperforming. Once you have identified why the business may be underperforming, you will be better placed to determine whether or not this is a business you wish to purchase. If you do choose to proceed with the purchase, make sure you negotiate on price. You don’t want to pay too much for a business that is potentially underperforming.

As you can see, there are some significant pros and cons associated with buying an established business.

If you want more information or would like to speak to a small business owner who understands what you are going through, make sure you contact Mortgage Choice today.


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