Benefits And Drawbacks of Buying An Existing Business
By: Transition Equity Partners
Tags: Business Concept, Business, Business Strategy, Buying Existing Business, Investors

Whether you are a newbie or a pro in the field of business, the decision to buy an existing business is always critical for an investor. If you do not have any past experience, then it looks an easy way to grab the opportunity and become an entrepreneur without starting completely from scratch.

The tradition of buying an existing business is not new. It is a proven technique to expand your business portfolio and of course, one cannot get away from earning more profit. There are many investors who look to buy potential businesses every year.

So, if you are considering to buy an existing business, then the first step is to learn the benefits as well as the drawbacks that you have to deal with in the process.

Benefits of buying an existing business

When you are buying a business to run by yourself, then it holds many strategic advantages over starting a new business. Some of the key benefits are discussed below.

Less revenue is spent on operations

When you buy an existing business, then the amount of revenue spent on the operations is reduced by a huge margin with respect to starting a new business. The main reason for lower operating costs is that the business has its base established in the market.

The moment the paper works are over, the power of the operations is transferred to your hands and there is immediate cash flow. There is no need for making a budget to:

Hire employees

Develop marketing strategies

Build a customer base

And these factors, allow you to invest more towards the expansion of the business as per your own vision.

Get a proven business concept

Generally, if you start a new business, then most of your time is consumed in the beginning phase in order to plan a fruitful business concept. But when you take over an existing business, then it has the basic plans and procedures in place.

Along with owning the business on paper, you also get the possession of several establishments in the market such as:

Office space

Brand value

Existing Customer

Vendors & suppliers

Management policies

It is not always that you will end up owning a very profitable business from the starting day, but it does save you from a difficult start-up phase while establishing a new business.

Easier to secure loans

An established business will have a financial history, which makes it easier for you to get loans and attract investors. Buying an existing business is considered less risky as the lenders can easily analyze the past records of the business and predict future performance.

The banks are also willing to sanction a loan if you can show that your business has the following:

Strong market position

Brand recognition

Good customer base

The above factors make it easier for any lender or bank to judge your stand in the business market and there is less hustle to grant the applied loan.

Drawbacks of buying an existing business

Along with the benefits, the process of acquiring an existing business also has its own drawbacks. Some of the common drawbacks are mentioned below.

Higher purchasing cost

When you decide to buy an existing business, then you must hold a strong financial backup. Because you often need to invest a large amount up front while making the deal. There is also a need to have an extra budget for professionals like solicitors and accountants.

The reason for the higher purchasing cost is because you need not plan, buy or set anything for the business. You get it all along with the obvious assets. But at times, the finalized amount might be way greater than required for starting a new business.

Unfamiliar with the culture

When you acquire a business, then there is a potential drawback of not getting into the culture of the business. As you have not started the business, then it is difficult to get into the skin of the company working culture. This case is more severe if you are entering a business that is not your cup of tea.

You also have to give more time to understand the details of the products, processes, employees and also the financial. You have to also analyze the external factors such as increased competition or a declining industry which can affect future growth.

Remember

When you buy an existing company, then no doubt — it saves you from the hectic works of starting a brand new company. But, at the same time — finding a suitable business for sale and finalizing the deal while taking care of the interest of both the parties is not an easy task.

And you should not ignore to analyze your position on the paper with respect to the benefits and drawbacks of buying the business. This result may be a major factor in determining your success in the acquisition.