The Pros and Cons of Buying an Existing Business

Buying an Existing Business

Here are the Pros and Cons

Are you thinking about buying a business? Learn about the pros and cons of buying an existing business before you move forward.

Buying existing businesses

A record number of businesses were sold in 2019. That number continues to trend upward from previous years as baby boomers seek to retire and millennials begin to realize there might be limited exit options for their would-be unicorns in a public market focused on profit….

The economy is still doing well. Most businesses that sell are financially healthy, with cash flow to pay off the acquisition price.

While buying an existing business definitely has its advantages, there are also a few downsides anyone looking to buy should be aware of. The more you understand the nuances of buying an existing business, the more successful you'll be. 

We want to help you understand the pros and cons of purchasing an existing business. Keep reading to learn more. 

Advantages of Buying an Existing Business

It's not easy to start your own business. Statistically speaking, most startup businesses shut their doors within five years. 

Which makes buying an already established business that's proven to be financially successful a smart move. The hard work has already taken place to get past liftoff and into the atmosphere of profitability.

Access to a Network of People

When you buy an existing business, you get access to an existing network of people who can help guide you and your business including:

• Loyal customers

• Vendors

• Suppliers

• Employees

Also, if the existing owner has established relationships with banks, printers, advertisers, and insurance companies, it's much easier than trying to embark on those relationships from scratch. 

Established Brand

Branding is an essential part of marketing. Without loyal customers, there is no viable business. 

Buying a small business with a well-established brand name makes it easier for you to reach out to attract new business. 

Fewer Financial Surprises

There's a lot of risks a new business owner takes. But when the seller already has everything in place, that means the business is already operating and pricing has already been established. 

There's less of a chance you'll get caught in a money pit because the seller should already have provided you with the financial documents. 

Also, the sale is structured so you can cover all your expenses including the debt service and your salary. 

The Disadvantages of Buying an Established Business

While the business may already be well-established, that doesn't mean a few changes may be necessary. It's also difficult to fully comprehend what changes are needed until you've already purchased the business. 

However, here are a few red flags to look out for:

• High employee turnover

• Outdated or unreliable equipment

• Unreliable suppliers

A business that carries existing debt or has cash flow issues also will mean there's hard work ahead of you to get back into the black. And it's not always easy to walk into an already established business and try to change the rules. 

The Brand May Be Established But Suffer from PR Issues

While it's great to buy a business with an already established brand name, if the company suffers from PR (public relations) issues, you're inheriting a potential disaster that is now your job to clean up. 

Even a new owner may not be enough to change the minds of unhappy former patrons. Make sure you buy a business with a positive reputation. 

A Cheap Business Isn't Necessarily a Good Thing

If a business seems inexpensive it's usually not a good thing. An expensive business means it's doing financially well and has a good reputation. 

A cheap business may mean it has a bad reputation or a good or service isn't performing well in the market. Always ask yourself if it's worth the money and the work you'll need to put in to ensure a company stays successful after you've bought it. 

Start Getting Matched With Acquisitions and Make Some Inquiries

The best way to get going on buying your first business is to start looking at opportunities and reach out to connect with the seller or the seller’s business broker if you’re serious about any specific opportunity. As a buyer, at no cost to you, you can set up your profile and acquisition preferences today on BizNexus and we’ll start showing you opportunities from our $1 billioin+ inventory platform that makes sense for you.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

Tips on Selling Your Business With a Business Broker

Want to Sell Your Business?

Connect with the RIGHT intermediary and leverage their niche expertise

When the decision to sell a business is final, business sellers often try to do it alone to save themselves the cost of a commission (or because they don’t even know what a “business broker” is, which indicates a larger awareness issue in the industry…).

Today, business acquisition & sale markets are awash with high-tech platforms that claim to make selling a business less labor-intensive and stressful. At BizNexus, we don’t allow sellers to post directly on our platform, and we do that because we believe in the value a great intermediary can provide when it comes to vetting, pricing, and negotiating a unique transaction. If you’re a would-be seller thinking of going along, it’s best to understand the resources available to you to help make a successful transaction actually happen before you jump in on your own.

Data and Reviews

We’re big fans of people, -real people who absolutely should be involved in any company sale process. Use reviews to help you build your deal team. Lawyers, business brokers, CPAs…. It’s 2020 people, -if there’s no data on the interweb about a professional you intend to work with there might be something off, so be sure to check with references and verify, verify, verify before you sign any contract. When a business owner has a business for sale, the process can get sticky leading to a potential transaction close, and we strongly recommend having experienced, capable professionals on-call to help you get your transaction over the goal-line.

Finding the Right Marketplace to advertise a Business for sale

There are certain features to consider when it comes to finding the best marketplaces to advertise a business for sale. These include:

• Do you have clarity on who potential buyers actually are?

• Does the marketplace simply allow you to post a business for sale for a fee? Or is there a professional involved at some point in the process for valuation and listing?

• Is there any degree of confidentiality? Can you anonymize your information, location, etc., and still get in front of the right buyers?

An Online Site Based on People & Professionals

When the decision to sell a business is final, we recommend you try to get matched with the best intermediaries for you based on industry, location, deal size, and real-time transaction data. Check out BizNexus, and get matched up with your perfect business intermediary. We’re a platform for active business sellers and business brokerages active in the industry.

BizNexus - A Solution For Busy Entrepreneurs

If you’re busy running the day-to-day of your business, you might not have time to give the selling process the TLC it deserves. It’s a classic situation of not being able to focus on what’s important because you’re buried with everything urgent. BizNexus is a marketplace created for entrepreneurs, and it only takes a few seconds to get matched up with the best business broker for you, so give it a whirl if you want to get the ball rolling on setting yourself up for a great exit.

BizNexus -Learn More From Our YouTube Playlist:

PREPARING TO EXIT YOUR COMPANY

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.