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If you don't want to start from scratch, buying an existing business may be an excellent alternative. Let's take a look at some of the advantages and disadvantages of buying an existing business.
Advantages of Buying an Existing Business:
- Immediate operation. Operations can start immediately.
- Quick cash flow. Existing inventory and receivables can produce quick cash flow.
- Existing customers. Customers and suppliers have already been located, and relationships with them have been established.
- Existing goodwill. Goodwill toward products or services has (presumably) been created.
- Easier financing. Financing is easier to obtain because the business has a track record.
- Eliminate competition. Buying a business may eliminate a competitor that you would have had, had you started from scratch.
Disadvantages of Buying an Existing Business:
- Cost. Buying a business is sometimes, but not always, more costly than starting one from scratch.
- Problems. There may be inherent problems in the business, some of which may not be apparent until after the sale.
- Obsolete goods. Inventories and equipment may be obsolete.
- Personality conflicts. Your personality may clash with existing managers and employees.
- Uncollectable receivables. Bills owed to the business by its customers may be old, stale, and ultimately worthless.
The steps involved in purchasing a business are similar to those you need to take whenever you make any major purchase. You need to:
Caution should be exercised throughout the whole process, not only because it will help you find the business that is right for you, but it will also help you to avoid being taken advantage of by unscrupulous sellers. Your attorney or your accountant should be actively involved in your search. You may also want to consider our detailed description of selling a business from the seller's point of view.