Why Buy When You Can Start Your Own from Scratch



When you start investigating whether to buy a business, you will come up with a list of advantages as well disadvantages if you go down the purchase option rather than starting one up from scratch.

Before you make your decision to buy, take time to fully assess the advantages and ensure that they clearly outweigh the disadvantages because one major disadvantage can easily outweigh a number of advantages. Many feel that buying a ready-made business that has a track record is a much safer way to get into business. They acknowledge that starting a business from scratch is fraught with many potential headaches and risks that are not present when buying an existing operation.

People will look at buying a business rather than starting up one from the beginning for a number of reasons. The main one will be that buying an existing operation gets you off to a flying start without the need to get involved in the headaches of developing something from nothing.

Whatever the final decision, new business owners need to appreciate that there will be some form of risk involved in going into any type of business, whether you are starting one up or buying an existing operation. The choice will depend a great deal on the goals new owner has and what he/she wants to achieve.

If you are not a risk taker and lack confidence in your ability to own and run a business, then it would be best not to proceed. Too many people imagine that buying a business means all their worries will be over and that all they need to do is stand behind the counter and tally up the sales. Nothing could be further from the truth. Being a business owner involves a lot of hard work, a lot of sacrifice and the ability to manage money and people if you are going to be successful with the business you buy.

Here are the main FORs and AGAINST to weigh up when you choosing between buying rather than starting up from scratch.

FORs

  • Existing customers.
    The fact that the business will already have existing customers is a big advantage. Existing customers mean existing cash flow, as well as the opportunity to market other products to them, or to encourage them to increase their purchasing. Having an existing and experienced customer base is very valuable because the relationships have taken time to establish over the years and are firmly established - resulting in ongoing sales.

  • Existing suppliers.
    Having existing suppliers means suppliers accounts have already been set up so there is not the need to go through the process of checking the credit history or track record of your business suppliers before an account can be commenced. Your suppliers are also aware of your requirements and payment terms have been agreed so you won't have to negotiate terms for your buying.

  • Less competition.
    The fact that the business has already been in operation means that no new competitors are added into the marketplace. This would be pleasing to the other competitors.

  • Should be a more efficient operation.
    By the time you take over, the business should have fully established systems in place which ensure the efficiency of the operation. The previous owner would have put systems and methods in to reduce costs so only essential expenditure was spent on various areas of the business. The end result should be high efficiency and lower costs.

  • Successful future.
    If you have bought a successful business there is no reason why you cannot continue it on the road to success. In fact, you should be able to bring in new methods and ideas to make the business more successful than previously.

  • Less stress and strain.
    You should have less stress than if you had to set up from scratch. You can run the business with all procedures and controls in place. You would have less of a gamble and if you follow (for a short time) the previous owner's systems, it should result in less heartache and pressure, as well as reduced stress.


AGAINST

  • Cost of purchase.
    In most cases it would cost you more to buy a business than to start up one from scratch. You will have to pay for goodwill, which is added on to the cost of assets that make up part of the business. However sometimes the cost of starting up a business can be higher than buying one outright. This often happens when the business starting up has to purchase plant and equipment, set up offices, buy machinery, etc. More often then not the cost of these items would be higher purchased new than if they were part of the books of an old business. In addition the costs of setting up can sometimes overrun if problems arise during the early set up period.

  • Stock.
    Sometimes the new owner will take over stock that is slow moving or obsolete and this is something that needs to be watched, because it may have little value when put on the market.

  • Staff.
    Sometimes it is better to start off with new staff who do not have preconceived ideas and who have not set up their own "little kingdoms". These kingdoms which can often result in major problems for you as the new owner.

  • Past problems.
    If the business has had past problems, either through a poor reputation with paying bills or poor customer service etc you will inherit all this.

  • Old plant and equipment.
    Very often the plant and equipment taken over is old or needs replacing, or requires substantial maintenance. The low cost you pay for a business can sometimes be outweighed by the condition of the plant and equipment especially if repairs are necessary or the equipment needs replacing. Watch this.

  • Value of the business.
    Often the previous owner values their business at an amount that is far higher than it's true worth. This is always the case if the goodwill figure, added on to the assets of the business, is excessive. Valuations can be tricky because the previous owner is trying to get maximum price, while you are trying to get a bargain.

  • Lease.
    If you are buying an existing business with leased premises, you will generally be required to take over the lease on the premises. Difficulties arise when the landlord is uncooperative, or seeks an increased rent. Repairs may be required which the landlord refuses to fix. This would strain the relationship. If you are starting a business from scratch, these problems don't arise because you will take over the premises only after being happy with the landlord and the terms of the lease.

  • Poor facilities.
    The premises and equipment might need modernisation and maintenance or repair. You will be stuck with these premises and it’s the layout and it would be expensive to make changes. The Landlord may not be happy with you changing things around anyway.


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