Having decided to go into business and selected a potential business idea the question arises, should you start from scratch or buy an existing business? If you are one of the few who have a completely new product or service, the decision, by definition, is made for you. For others, the choice is open.
A major appeal of buying an existing business is speed - the business is a going concern - hopefully, revenue will come in from day one. There is little inconvenience: no looking for suitable premises, choosing equipment or finding new customers and suppliers.
A second and important advantage is that if you have selected your business well, you will have a sound base from which to expand, innovate and perhaps change direction.
Starting from scratch, it often takes three to six months to reach a viable sales level. An existing business will have a track record. You can look at past sales records and have an accountant check out its financial viability.
When starting from scratch, the risk is greater, market research can provide good estimates of potential reveneur - but it cannot guarantee it!
There are disadvantages, however. Starting from scratch can be cheaper, as you are not paying for goodwill. Also, you can often more easily obtain exactly what you require in terms of premises, location, equipment and so on.
Buying a business is sometimes like buying a second hand car or house - there are inseen flaws.
After you take over, you may find that the premises are not really as suitable as you thought - they might be in the wrong place, have the wrong equipment and there may be not sufficient room for expansion, eg. planning permission cannot be gained for an extension.
Buyers new to business often make he mistake of relying too heavily on the past accounts of the business for assurance that it is a viable concern. ‘Let the buyer beware’ is a saying worth remembering. The problem with records is two-fold.
First, the records refer to what has happened in the past - there is no guarantee that the business will continue to be a success in the future.
For instance, the previous owner’s business may have been based on personal reputation - when he goes so does the business. I know of a young couple who recently purchased a small hotel, the accounts of which showed good past trade.
The previous owner purchased another hotel in the same vicinity and took his regular clientele with him. The young couple are now in the position of having to build up their client base from scratch and as a consequence have serious cash-flow problems.
Secondly, accounts can conceal as much as they reveal, and depend for their accuracy on the honesty of the owner of the business. It should also be noted that the accounts do not give the full story.
For instance, they do not tell you whether double yellow lines are going to be placed outside your newly acquired newsagent’s shop or about the large store that is going to open up close by and take away all your trade.
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