When starting a business, there is the option of starting one from scratch or buying an existing one. There are pros and cons to both options, and it is important to carefully weigh both options before deciding on one over the other.
The main disadvantages of starting afresh include having to build a customer base, marketing, hiring competitive staff and establishing positive cash flow. It takes some businesses a number of months to break even and start turning a profit. This is why some investors choose to buy an existing business. The client base is established, the staff knows what to do and the business is already generating a profit. The business is also well known to customers and the general public.
There are some disadvantages, though. One is that this option costs more than starting a business from scratch. On the bright side, it is easier to secure financing for a going concern than to get a loan to start a new business. Lenders generally feel more comfortable lending money that will go into a business that already has a proven track record.
If you decide to invest in an existing business, there are a number of factors that you should take into consideration. Otherwise, the advantages that are supposed to put you ahead may become a liability. The staff could be uncooperative, the inventory could be obsolete or slow-moving or the owner may be selling because business is not so good.
It is well worth it to engage investment experts to help you make the right decisions about the following factors:
It all starts with choosing the business that is right for you. It generally works best if you buy into an industry in which you have some knowledge or experience. If necessary, spend some time getting some training. This way, you will know what to do to maintain high standards, and you will know what the standards should be.
Are you looking to start small and then expand over time or do you wish to jump into a medium or large business? Start with a business you can handle in terms of its daily operations, number of employees, premises, inventory and sales. How many customers or orders can you handle in a day?
Location is an important aspect that can make or break a business. Is the location of the business one where there is significant human traffic and it easy for customers to locate it and access it? Is it in an area that is safe? Can customers get secure parking? These are questions customers will ask themselves, so it is wise for you to think about it and answer the questions affirmatively beforehand.
Depending on the business you choose, you could buy existing inventory or need to start afresh with your own. If you will be buying existing inventory, ensure that it is still relevant in the market and that you are buying at a price at which you can sell for a profit. You don’t want to pay for items that no longer have a market or that are too expensive to give you a good margin.
If you are buying machinery and equipment, ensure that they are modern and in perfect working condition. If they are not, consider buying your own. You don’t want operations to be slow or compromised in quality because the equipment is slow or outdated.
Finding a business to buy
Once you have decided on the kind of business in which you wish to invest and the location, you can get down to finding a business to buy. Look for Business Opportunities and Businesses for Sale in the local paper and online. You can also engage a business broker or post your own Want to Buy ad. Good brokers will prescreen businesses on sale for you and filter questionable ones that are overpriced or that don’t have full financial disclosure. You should also network with business owners in the area to find out about upcoming opportunities to buy.
Sealing the deal
When you do find a good opportunity, work with a team of a lawyer, investment advisor and accountant to take a close look at the details. They will also ensure that due process is followed so that when you open the doors of your new business, you will own it fair and square and will have disclosure about it. A close check will also ensure that there are no hidden skeletons like unpaid taxes and other liabilities.