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