Advantages & Disadvantages of Buying a Business

Andy Anderson

Many find the idea of running a small business appealing, but lose their motivation after dealing with business plans, investors, and legal issues associated with new start-ups. "About half of all new establishments survive five years or more and about one-third survive 10 years or more. As one would expect, the probability of survival increases with a firm’s age. Survival rates have changed little over time.”- Source: U.S. Bureau of Labor Statistics, BED

For those disheartened by such risky undertakings, buying an existing business is often a simpler and safer alternative. Less stress and strain: An existing business acquisition does not mean stress free, but it will be significantly less than if you were always wondering and worrying if customers would really come and, if and when, the monetary investment would pay off on a start-from-scratch business venture.

Advantages

Buying a business can be a more effective way to business ownership.

The main reason to buy an existing business is the drastic reduction in startup costs of time, money, and energy. The advantages to buying an existing business typically outweigh the disadvantages. Existing businesses can usually obtain financing from financial institutions because they have an established history, assets, and a proven idea. Projections for a startup are nothing more than an educated guess. Projections for existing businesses for sale are based on historical results.

Experts generally agree that, in most cases, paying the extra cost for an existing business will outweigh the risks of starting one from scratch. Established businesses are less risky because of business name recognition and goodwill, there is an existing customer base, relationship with suppliers, operating processes, a known location, and employees have already been hired and trained. In addition, there is existing cash flow which will likely provide some immediate income to the buyer.

Disadvantages

The biggest block to buying a small business outright is the initial purchasing cost. As the business concept, customer base, brands, and other fundamental work have already been done, the financial costs of acquiring an existing business is usually greater then starting one from nothing. Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be non-collectable. Good research is the key to avoiding these problems.

Read 5926 times

Click to contact us for help buying or selling a business.  Since 1980 we have been in the "business of business." We are a professional company specializing in bringing Business Buyers and Sellers together. Being one of the Nations leading firms in our industry, we are best equipped to help you because of our background and years of experience in working with business buyers Nationwide and businesses of all sizes and types. Your business purchase or sale information will be handled by experts and conducted in a confidential manner.

Blog Topics