Things to Consider Before Buying a BusinessNovember 6, 2019
There is constant debate which runs in an Entrepreneurs’ mind whether to start a business from scratch or acquire/buy an existing business. There is no straight answer to this. Much depends upon entrepreneurs own personal background, understanding of interested sector/industry and experience of running a business. To add to his confusion, there are numerous businesses for sale available in majority of the market and in most of the sectors/industries.
Let us look into the clear advantages of buying an existing business:
• You can begin running the operation immediately which saves you time and energy
• Proven business model with established customer and clients
• Existing Goodwill (For Positive, you might have to pay a higher premium) and established brand
• Less difficulty in securing financing, as lenders prefer businesses with a track record
• Experience and trained employee could be a huge advantage ( To be negotiated)
• Built and developed infrastructure like building, office, computers,distribution networks
• Developed Policy & Procedures with system and processes in place
• Immediate cash flow starts as a reliable income (if the business is profitable, otherwise you might have to put in additional cash)
Before you contemplate buying a business, you should first deliberate on what is the right business for you to buy. You could hire a consultant or an advisory to do the work for you but it is strongly recommended that the entrepreneur does his own research on the business he wishes to buy. There is no substitute of ones own research and the process itself is invaluable as it would set up your mind of various business and environment that influences the business. Apart from the obvious economic reason for acquiring (this is also true for starting up fresh); there are couple of questions which the entrepreneur has to answer himself. Does the intended business excite him/her? Is s/he passionate about it? Would it give him enough incentive and drive to wake up every morning to deal with various challenges and issues that come up in running a business? Unless the answers to these questions are in affirmative, you should do a rethink. Do not settle, keep looking till you find a business you will love running and you care deeply about. This would keep you motivated and focused even in most challenging and trying times.
Once you have identified a business to buy, you should do a comprehensive due diligence before you sign the purchase agreement. Things which look too good to be true should be given careful scrutiny. If you think your judgement could be biased, get your friend, spouse or anyone who could give you an honest and third party opinion. They might raise questions or issues, however small it might be, which might not occur to you.