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Pros and Cons of Buying an Existing Business

— May 17, 2024

Do the pros outweigh the cons for you? Do you feel it’s not a challenge you are up to? Arm yourself with as much data as possible and think it through carefully.

If you want to become a business owner, you don’t necessarily have to start one yourself. There is also the option of buying an existing business. 

Ideally, you will purchase a company that you are confident you can run and grow. It should be aligned with your knowledge and experience. Otherwise, your venture may turn out to be too challenging. 

Here are the pros and cons you should be aware of before you choose to buy a business. 

Pro: It Has an Established Customer Base 

One of the biggest pros of buying an existing business is that it comes with an established customer base. You won’t have to start from scratch and build a name for yourself. Instead, there will already be a group of people who trust you and want to do business with you. 

Your task will be to get to know the target audience of the business and their clients and customers. From there, you will need to find a way to retain them, as well as to reach out to new audiences who have not yet heard of the business. 

One of the biggest challenges of establishing a business is turning it profitable. Most businesses fail, and there is no guarantee you will make it when you start from square one. With a business that has been operational for years, these risks are significantly lower. 

Pro: You Can Start Earning Immediately 

When you buy an existing business, you will be generating revenue immediately. There will be no long weeks or months when hardly anything comes in and you have to cover the costs of operation.

When looking at businesses to buy, make sure to carefully go over their monthly revenue and expenses. Are they able to cover all of their overheads? How much profit is there left at the end of the month? 

These numbers will help you determine when you can expect to earn your initial investment back. It will also suggest opportunities for growth or potential expansion. 

Pro: Comes with Lower Operating Costs

Buying a business has lower operating costs than starting a new one. You won’t have to invest in any equipment. You won’t have to rent an office space. You won’t have to spend time hiring people or running marketing campaigns that may not yield the expected results. 

Instead, if you buy a company that has been in business for a while, you will walk into what is hopefully a well-oiled machine. 

Pro: You Don’t Have to Pay for It Alone

The most obvious hurdle most potential business buyers face is having to come up with a significant amount of money to make the purchase. 

Luckily, you can find investors to help you buy a business relatively simply, although it will take a fair amount of research.

Business people shaking hands; image by, via
Business people shaking hands; image by, via

You can find an intermediary who will help you find the right loan or the right investor. You can get a loan from a bank. You can also look for investors or business partners who may also offer their advice and expertise. 

Analyze your options carefully before you make a decision. The consequences will be with you for years, potentially decades, so it’s important to tie yourself to the right firm or team at this early stage. 

Con: Higher Upfront Costs 

The most obvious con of buying an existing business is the significantly higher upfront cost compared to starting your own business. 

When you begin from scratch, the costs will be spaced out more evenly. As your business begins to grow, you will start earning some money back, so it will be easier to balance the expenses and the income. 

Make sure to carefully assess all financial statements, assets, and liabilities of the business you want to buy. Compare what it would cost to buy a business to what it would cost to start one. Factor in time and effort as well, and not just the monetary requirements. 

Con: You Inherit All the Problems

When you buy a business, you will be able to take advantage of its established customer base, marketing and sales systems, and knowledgeable staff. You will, however, also inherit all the problems. 

You will now become the owner of any potential legal claims that may arise in the future. You will take on any outstanding debt. You will need to deal with any contract renegotiations that are coming up. There may be hidden costs or challenges you were not aware of when you first considered buying the business. 

Since you have no control over the company’s history, it’s important to do your due diligence and thoroughly research the company. Talk to customers, scour the internet, and see what the potential issues you can expect are. 

Con: Potential Issues with Staff and Customers 

Finally, you will also have to deal with the challenges of transition. Some employees may be resistant to change and choose to leave when the business is sold. Others may choose to stay but resist your style of leadership and make your job more difficult. Conflicts related to your vision and goals for the business may also arise. 

The same is true of customers. Some may have preferred the way things were done under the former ownership, or they might simply be distrustful of the new regime. 

It’s vital to take the time to get to know how your new business works before you start making any changes. Talk to the staff and genuinely ask for their opinion. Establish a great relationship with as many of them as you can, especially the management and the most knowledgeable and valuable workers. Work with them to determine the next steps and how you can make the business grow. 

Wrapping Up 

Now that you understand what you can expect when buying an existing business, take the time to consider the options. 

Do the pros outweigh the cons for you? Do you feel it’s not a challenge you are up to? Arm yourself with as much data as possible and think it through carefully.

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