Why You Should (or Should Not) be Buying an Existing Business
Building a Business from the ground up is quite a challenging feat. It requires more than just capital because venturing into a new business will consume a lot of your time and energy.
But for those who are finding a quicker path to Entrepreneurship, buying an existing business may be the right option for you. However, do not be deceived. This still demands a lot of preparation.
For one, you will be making a ton of research on the possible business ventures you want to take on. Among the things you should be considering are the location, business size, and industry—all of which should coincide with your personal goals and preferences as an entrepreneur.
You will then have to look into the financial standing of the potential acquisitions. Are they in good shape, financially speaking? If not, do the possible future returns outweigh the expenses? As part of due diligence, you should be able to analyze the financial position to know that your investment will be fruitful in the future.
Why You Should Buy a Business
There are many reasons why buying an existing business will be beneficial for you.
- An existing business has already gone through the so-called birth pains. Its operations are already up and running, which means you can generate revenues immediately.
- It already has an operational and financial framework that you can just continue using or improve, if necessary. This means that it has secured a good supplier for any material needed and has established a credit line with a bank, among others.
- The staff already has the experience, making it easier for you to operate the business smoothly.
- Advertising and marketing will be less difficult because an existing business already has customers and target market.
- Given that the business prospect has already operated for quite some time, you will be able to make use of its financial history to create earnings projections and business plans. All these can contribute in booking more income.
- Considering all that is mentioned above, acquiring an existing business is deemed less risky in general.
Why You Should Not Buy a Business
While there are many upsides on buying an existing business, you should be able to look on the other side as well. This is not to discourage you but to keep you well-informed before deciding.
- If you are buying a thriving business, the owners will ask for a hefty price. A large investment will require funding, which is not a problem if you have enough money. However, some will resort to borrowings, which could be a burden.
- It could be tiresome to accomplish a lot of legal documents to transfer the full ownership of the business to you.
- You might be tricked into buying a business whose financial standing was misrepresented.
- Because of this, you need to conduct thorough research—market study and financial review, among others—to know the business you are acquiring, which could also cost you time and even money.
- Having new owners might cause major disruptions in the operations, causing the business to become less profitable.
The Legal Side
After choosing a business, convincing the owners to sell and securing funding, what then? Both parties, the buyer and seller, should draft their agreement.
A legal advisor is needed to settle the acquisition, making sure the terms are fair and reasonable for both parties. The legal representative should also be able to make their client understand every item in the deal before signing it.
No clause should be ambiguous as this can cause trouble in the sale of the business.
After considering all these factors, hopefully, you were able to gauge the pros and cons of buying an existing business. It is now your move to decide if you will pursue this path.
Just remember, every business venture requires courage as well. Take that first step now and see where it leads you.
If you’re looking for a shelf company for sale, reach out to Contact 3E Accounting Philippines now for more tips. and our team will gladly help you out. We also offer services in accounting, payroll, audit, and related advisory, accounting information systems design, management advisory, and taxation.