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What Are the Advantages and Disadvantages of Buying an Existing Business?

It's advantageous to buy an existing business, like a carwash, if it has quality equipment and a trained staff.
Though the buyer of an existing business inherits a developed site, it may be in disrepair or verging on obsolescence.
A businessman.
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  • Written By: Diana Bocco
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 April 2014
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If you want to start your own business, the number of choices available are almost infinite: starting from zero, buying a franchise, partnering. If you don't have previous business experience, however, it may make sense to consider buying an existing business, which can put you ahead of the competition by throwing you directly into the business world. Before you make the final decision, though, here are some of the pros and cons of previously established businesses and how to deal with them.

Some advantages include the following:

  • The main benefit of buying an existing business is the fact that all legwork has already been done for you. Getting a business off the ground is often the hardest part, so you are guaranteeing a head start by skipping the first stage. No need to file paperwork, obtain permits, and consult with lawyers.

  • It gives you the advantage of an established customer base. People will already know the place, so the costs of advertising will be less. You will also avoid the uncertain initial period, where attracting customers to the business can turn into a full-time job in itself.

  • When you buy an existing business, you may get employees who are already working there to stay and work for you. This will allow you to employ their expertise rather than having to train new people to take over the work.

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Some disadvantages include the following:

  • You will inherit all problems that run with the business. If the previous owner had trouble attracting new customers, paying the lease, or running new campaigns, you will have to deal with everything to set things right before you can even start to think about moving forward. If the business has a history of disappointing customers, you may also have a hard time convincing people that things will change under your direction.

  • The purchase will probably mean a large initial investment, usually much higher than it will require to start a business from scratch. The investment will also have to be in a lump sum, and you won't have the chance to go through the process in phases.

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Discuss this Article

ZipLine
Post 5

So if I want to buy a small business, is it better to start from scratch or buy an existing one?

fBoyle
Post 4

@turquoise-- You're right. I think I'm one of the lucky ones because I haven't had any problems like that.

I took over a small pizza restaurant last year. The owner decided to retire and put it up for sale. I honestly didn't do too much research before making the investment but everything has turned out great.

I didn't have to do much marketing for business, people were already familiar with the establishment. As for the pizzas, the employees didn't change, they are still at the restaurant so our pizzas taste the same.

turquoise
Post 3

Taking over an existing business is good, but people should also think about why the business is on sale in the first place.

My sister bought an existing beauty salon. She was very happy because all of the equipment she needed was already there and included in the price. Equipment is the biggest expense when it comes to opening a beauty salon.

But the location of the salon isn't that great and she has been experiencing a lot of difficulty getting new customers. She found out after she took over the salon that this was the reason why the owner decided to sell it.

subway11
Post 2

Sunny27- I agree with you. I would much rather buy an existing business because the business model has been proven already. The best thing to do if you are considering buying a business is seeking out a business broker.

A business broker works much like a real estate agent but instead of focusing on homes, their focus is business. The can tell you which businesses generally offer the level of compensation that you are looking for and can even direct you to the right type of business based on your interests and financial capital.

There is no fee for this service as the seller pays the full commission.

Sunny27
Post 1

Good article- I agree that buying an existing business makes it easier for the new owner to continue operating the business. Starting a new business from the ground up requires so much time and effort that if you could buy an existing business that has been proven profitable it is worth the added cost.

Most businesses fail in the first few years, so buying an established business makes better sense. The foundation had been laid out and the hardest work it already done. Buying an existing business requires substantial research. Seek professional advice before buying.

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