Advantages and disadvantages of buying a business

Buying an established business rather than setting up a new business has many advantages; however, it is not without risk. You will need to know the advantages and disadvantages of buying an existing business and be clear about your ability to run a business.

Advantages of buying a business

Buying a business is generally considered less risky than starting your own business, especially if you can buy a well-managed, profitable business for the right price. Consider these advantages:

  • The difficult start-up work has already been done. The business should have plans and procedures in place.
  • Buying an established business means immediate cash flow.
  • The business will have a financial history, which gives you an idea of what to expect and can make it easier to secure loans and attract investors.
  • You will acquire existing customers, contacts, goodwill, suppliers, staff, plant, equipment and stock.
  • A market for your product or service is already established.
  • Existing employees and managers will have experience they can share.

Disadvantages of buying a business

Keep in mind that not every business on the market is a good prospect. Many owners will be selling unprofitable or under-performing businesses. While this can be a chance to buy and develop a cheap business, it can also be a risky investment. Consider these disadvantages:

  • The business might need major improvements to old plant and equipment.
  • You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors and accountants.
  • The business may be poorly located or badly managed, with low staff morale.
  • External factors, such as increasing competition or a declining industry, can affect future growth.
  • Under-performing businesses can require a lot of investment to make them profitable.
Last reviewed
May 16, 2014

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