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.
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