How to Buy an Existing Business

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Looking to start your own business? Sometimes it’s better to buy an existing business rather than to start one from scratch. Besides, there are many legitimate reasons that individuals, families or partnerships are inclined to sell an existing business. Unfortunately, the majority of businesses are for sale because they’re not performing…

Therefore taking over an existing business demands evaluation, research and in-grown interest. So why should you consider buying an existing business?

The pros and cons when you buy an existing business

Andy Debolt writing in the Gazette Review noted the following pros and cons to consider before buying an existing restaurant:

Pros:

  1. It costs much less. Buying an existing restaurant is less capital-intensive than opening one from scratch. Indeed, the existing business means you don’t have to spend money on brand new machinery and equipment need to accomplish kitchen tasks.
  2. You can make money right away. If the restaurant is already profitable, you don’t have to wait a while before waiting for cash flow. In fact, the money can start coming in right from the start.
  3. You can open more quickly. With a new restaurant, you typically have to go through bureaucratic red tape just to get the licenses and permits required. For that reason it can take weeks or even months before you have all your papers in order. However, with an existing restaurant, you can quickly apply for a temporary permit and start providing service to the public immediately.
  4. You have an existing customer base already. Getting the word out about a new restaurant can be one of the most challenging parts of starting a business. Indeed, if you buy an existing restaurant, you don’t have to spend as much time or money to acquire new customers because you already have an existing clientele.

Cons:

  1. It may cost more in maintenance. Even if the kitchen commercial equipment is in good condition, they will still need more servicing and maintenance for the simple fact that they’ve been exposed to wear and tear much longer than brand new equipment.
  2. It may cost you a lot if the restaurant has a poor reputation. It takes a lot to reverse the reputation of a restaurant that suffers from a poor public image. As a result, if people didn’t think highly of the restaurant you’re considering to buy, you will have to do a lot of work to turn that reputation around.

What to consider before you buy an existing business

You should be wide awake when buying an existing business. Here’s why:

Rose Hill, Smallbusiness.co.uk warns that we need to be aware of the following when buying an existing business:

  • Financial risk – although the financial risk is higher when you start a business from scratch, you need to be sure the business you’re buying has stale finances.
  • Creativity – if you enjoy and are skilled in branding and innovation, you may be better suited to a start-up. Indeed, many times buying an existing business is more about revamping it – like it will be “under new management”…
  • Due diligence and covert problems – One aspect that could put you off buying a business would be a concern as to why the business is really up for sale. Although doing a due diligence is essential, it doesn’t show everything about the business. For example, issues within the company, such as increased competition in the market or be problems with current employees may only be later found out.

Where can you find existing businesses to buy?

According to Kyle Burbank, Born2invest.com it can often be difficult to not only find a business you’d want to own but to also find one where the current owner is willing to sell. Fortunately there are a few ways to find businesses for sale that might fit your needs. These include using online tools, reading local business journals, or working with a business broker.

Concluding

There’s a lot of finesse involved when you buy an existing business. Sadly most business owners sell their businesses because they are failing. However, it may also be a huge opportunity to buy an established business that needs only a bit of love and care to get going.

Most importantly, always negotiate the selling price. Good Luck!

Additional reading:

  1. The Price of Starting your own Business
  2. Franchising as a Business Opportunity

A well researched and written Business Plan helps to get your business started the right way.

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eBizplan.net

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Douw G Steyn

Douw G Steyn

Management consultant, blog writer, dreamer

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