The dream of many entrepreneurs is to own their own business. Many will start creating that business from scratch with their unique ideas. Some of those businesses succeed, but many of them wind up failing. This is why many are starting to look more closely at the idea of purchasing an existing business. It’s an easy way to get a foot in the door when barriers to entry might be present.
Are you thinking about creating your own opportunities today? Then here are some of the key points to consider when looking at the pros and cons of buying an existing business.
What Are the Pros of Buying an Existing Business?
1. There is already an existing business model in place.
This is especially true if the business has been operating for a minimum of 5 years. There will also be a short- and long-term business plan in place with meaningful goals already developed. This makes it a whole lot easier to get your unique ideas off to a running start.
2. You have an established customer base.
Businesses don’t keep operating if they are unable to offer a successful product. By purchasing an existing business, you can access to this customer base so you can begin to market your fresh ideas through a trusted brand. This can help you to create sales immediately, which may then lead to profit creation more quickly than other entrepreneurial efforts are able to provide.
3. You may even have distribution infrastructure in place.
Distribution is one of the greatest challenges a new business faces during their start-up period. If you buy an existing business, then there’s a good chance that this infrastructure has already been established.
4. You have experienced people in place already.
Training costs are one of the biggest expenses every company faces. This is why there is such a focus on reducing employee turnover rates in every industry. When an entrepreneur creates a new business, then everyone working for them must be trained at some level. This need is greatly reduced when an existing business is purchased.
5. Many best practices have already been established.
An existing business should already have a healthy set of policies and procedures in place which govern their operations. This also typically provides everyone a set of best practices to be followed at every position. If starting from scratch, this development process can easily take 6-12 months.
6. You gain access to all of that company’s assets.
Instead of worrying about where to find office space or a warehouse to store inventory, you can focus more on the marketing and customer service needs you’ll have to get your products out to your targeted demographics. Those assets often make it easier to secure financing for future business opportunities at better rates since there is hopefully a stronger credit history and more collateral available.
7. You can start working on growth right now.
An existing business is the perfect opportunity for an entrepreneur who is good at selling things. You can focus on the areas of a business that need a little help, shore them up, and be able to work on growth immediately.
8. It’s fun.
You don’t have to worry about establishing a brand, finding customers, or creating an online identity. Sometimes it’s fun to just settle in and get to work doing what you best.
What Are the Cons of Buying an Existing Business?
1. You still need to have industry experience to be successful.
You might be able to purchase an existing restaurant, but what happens if you have no restaurant experience as an entrepreneur? The business is still at a higher risk of failure. It’s often better to gain the experience needed before purchasing a business so you don’t have to fly by the seat of your pants and hope things will be all right.
2. There can be higher costs involved.
Depending on the business structure, it may only cost a few thousands dollars to start a new business from scratch. If you’re purchasing an existing business, the cost could reach six figures very quickly when real estate and legal fees are involved. You’ve got to have cash in order to make this type of opportunity happen.
3. It takes time to establish trust.
Having trained workers in place can be a definite benefit. If those workers are not happy with your purchase, then the trust-building process can be extremely lengthy. Some may keep that chip on their shoulder against you for the entire time they’re working for you. This negativity can be a major drain on your resources.
4. An established customer base isn’t always reliable.
Customers build relationships with brands and people simultaneously. If you purchase an existing business, then your customer base will still likely trust your brand. As an owner, however, you may not receive the same amount of trust. In return, the number of sales your business is able to achieve may go downward until you can form those necessary relationships.
5. There can be taxation consequences.
How much inventory does the business carry from year to year? What is the actual business structure of the company? What are your outgoing expenses? Did any liabilities transfer to you when you completed the sale? There are many ways that an unpleasant financial surprise can creep up when you purchase an existing business. Take your time to navigate these waters to make sure you’re getting a good deal.
6. New ideas might not be welcomed.
You might have a fresh idea as an entrepreneur, but the existing customer base might not like it at all. Even your employees might resent the new ideas. The same risks an entrepreneur faces when creating a start-up business in this area are present for entrepreneurs that purchase an existing business.
7. It reduces originality.
Some entrepreneurs love the idea of being original and creative. Purchasing an existing business isn’t exactly innovative.
8. Existing policies might not work with your new ideas.
If you know where you’d like to take an existing business in the coming years, a common stumbling block is the existing policies that are in place. If there’s one thing that every employee can agree upon, it’s a dislike for change. What’s worse is when those policies might work against what you’re trying to do.
Only an entrepreneur can decide whether or not the decision to buy an existing business is right for them. By evaluating each key point here and other issues unique to the purchasing contract, the best possible decision can be made.
Have you purchased an existing business in the past? What were some of the challenges you were able to conquer when you were in charge? We’d love to hear some of your success stories.