The Advantages and Disadvantages of Buying an Existing Business
Often, new entrepreneurs struggle with the decision between purchasing a business or launching a new one. This can be a difficult decision because purchasing a business has advantages and disadvantages, which we will go over below.
Advantages of Purchasing a Business
Most of the time, purchasing a business is a much safer decision than trying to start a new one. Plus, running an existing business is easier than trying to establish a new venture. Here are a few reasons why purchasing a business is a better option than trying to start one:
Business has valuation
The business has a track record
You can take a salary
Financing is easier with an acquisition
You can use the leverage
Business already has a customer/client base
Business already has supplier/vendor relationships
The business has established infrastructure
The business has systems/processes in place
Business has employees
You can hold on to existing management
The seller can train you in the business
Disadvantages of Purchasing a Business
While it’s true that there’s typically less risk with purchasing a business than with establishing a new one from scratch- it’s not always the most ideal option. If you make the wrong acquisition, you could end up losing money and having serious issues.
First, it’s important to note that, as a buyer, you must conduct due diligence. The seller wants to get as much as possible from the sale. Therefore, they may not always be honest, and buyers may have to make an offer without all of the necessary information.
Below are a few of the disadvantages of purchasing a business.
You may purchase a bad business
The business may be overvalued
Due diligence may miss some things
Financial reports may not contain all of the pertinent information
Seller’s motives are not always clear
Customers may be loyal to the current owner, not necessarily the business itself
Current staff may not be willing to stay on after you make the purchase
Businesses may have a bad reputation
If you are considering purchasing a business, you must understand the advantages and disadvantages. This can help you make an informed decision. In addition, contact Skogen Capital Lending for your financing needs. We will be more than happy to guide you through the process of purchasing a business or launching your own.