Buying an Established Business

One of the options available when starting a business might be to purchase one which is already established.

This method might well avoid many of the issues concerning building a new business from of the beginning and the potential for a large fall in income in the early periods of trading.

An established business would have a customer base, access to key suppliers and thus the owner might find that they have more time initially to begin growing the organisation, rather than sourcing suppliers and formulating an extensive business start-up plan.

Disadvantages of Buying an Established Business

A significant disadvantage of buying a business which is already established would of course be that the price and costs involved in acquiring it would be greater than if the operations were set-up from the beginning.

As well as paying for the tangible assets, the buyer is likely to have to acquire the goodwill of the business, the value of which would be uncertain.

The buyer would have to try to ascertain what exactly they are buying. It could be the technical know-how which the business has; it could be physical assets such as buildings or plant or it could be the skills that some key employees have.

Wherever the value lies within the business, the purchaser should assess the risk attached to each. Key employees may leave, technical know-how might be replicated by the competition and plant and machinery will one day, become obsolete.

Should one or more of the above events happen, the buyer should ask how such occurrences would affect the value of the business.

Practice in Running a Business

For someone leaving employment and starting a business, one of the significant factors which might exist when comparing buying an existing business against building one from scratch, is the expertise that person has in running an organisation.

In starting an entity from the beginning, a person might be given the time and opportunity to get used to their new way of life. Making decisions for themselves, bring the various components of the business together might be good learning experiences for the person to undergo.

There might be distinct advantages however, “completing this training” whilst transforming the business start-up idea in to an actual working operation. Mistakes which are made during the set-up stage are likely to be small and be able to be corrected before the operation go live.

If the person buys an existing business however, any mistakes which are made due to the person’s inexperience will be made in real-time on a live business. They stand a greater chance therefore, of affecting the customers and generally having a greater effect on the operation.

The question to ask is: I am capable of running an established business right now or should I learn about it whilst I set-up my own?