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.
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.