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Advantages and Disadvantages of Buying a Business

Buying a Business

Advantages and Disadvantages of Buying a Business

Written by Samuel Muriithi for Gaebler Ventures

One of the ways through which many successful entrepreneurs have entered the business world is the purchase of an existing business. There are a good number of advantages and disadvantages that come with such a decision and it is prudent to find out why this may or may not be the way forward for you

Businesses for sale can normally be traced from three main sources: advertisements in newspaper classified sections, announcements to and from industry sources, and from listings with business brokers.

Advantages and Disadvantages of Buying a Business

'Businesses for sale' ads in the classifieds are normally very brief, just enough to elicit interest. Contacts are provided and if you fancy the idea, you can set up a meeting with the seller. Business brokers work in much the same way as real estate agents do. They do the advertising, screen the respondents, and finally connect these to the business seller. Brokers earn a percentage of the selling price once a deal between the seller and buyer is reached. People selling their businesses will naturally let other people in the industry know about this and it is these people who'll then spread the word around and act as referrals.

Advantages of buying an existent business

The fact that a seller will often stay on for a given period of time to teach the ropes of the trade to the new owner is in itself a very big plus especially for green entrepreneurs.

An existing business has an established structure in terms of suppliers, business procedures and a customer base. It is easier to know what expenses, revenues and profits are anticipated, this as compared to the situation for a start-up business. Getting to finance the purchasing of an existent business may be less complicated. The seller may agree to a down-payment and have the balance paid in monthly installments. Alternatively the buyer can get assistance from a financial institution; lenders are generally more favorable to existent businesses as compared to start-ups as the former present a lesser credit risk. Buying an existent business means that no start-up capital is required. It presents greater chances of success as the start-up phase has already been successfully negotiated. You also get to inherit an experienced workforce (wherever applicable) and as such you won't need to do much training, if any.

Disadvantages of purchasing an existent business

Many businesses for sale are sold off because they have internal problems – you may inherit these as the new owner. For example, turning around a business that had a wanting reputation with customers may be a tall order.

The cost of purchasing an existent business that has a track record of profitability may be quite restricting as the seller will obviously want to set a price that reflects the time and effort invested to get the business to that level of success. Starting a business from scratch may be the more logical option here.

Not all existing businesses have a desirable workforce to inherit. As the buyer you may be forced to seek and train a fresh batch of employees. You may also be compelled to incur expenses in the purchase of new equipment so as to modernize operations.

Samuel Muriithi is a business owner in Nairobi, Kenya. He has extensive international business experience in the United States and India.