Buying an existing business: more cons than pros

Going into business does not necessarily mean building up from scratch.  You can buy an already established business.

You don’t usually find advertisements of businesses for sale in the newspapers, on television, or even online.  Open your ears wider, ask around.  And be warned – it is not wise to take at face value any information you hear or receive.  You must examine whose interest the source of information represents.  In fact, some experts would advise first-time entrepreneurs to guard against buying an existing business.

The advantages of buying a going concern are that you can earn income right from the start and that the vendor is likely to help you settle in as part of your buying agreement with him.

The disadvantages are more numerous.

First, you must know why the owner is selling the business.  Do not simply accept the vendor’s explanation.  Check and have your professional advisers – particularly your lawyer – check, too. Second, you need more capital to buy an existing company.  You will be purchasing not only the tangible assets but also the goodwill.  In other words, it is expected that previous customers of the business will continue to trade with you even through ownership has changed hands.  Also, you might find the purchase price a bit steep and be forced to use all of your cash just to get the business.  You may be called on to buy fixed assets or stocks you do not want as part of the deal.

In the case of a partnership or corporation, you will buy as well part of the debts and liabilities of that company by buying shares in it.  Whatever the nature of the business, it will not be quite what you want or where you want it. But perhaps, more important you will not have the immense personal satisfaction of creating something out of nothing which you can get from starting a new business.

It bears to repeat: Do not consider buying an existing business without the fullest professional advice.

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