Advantages of Buying a Pre-existing Business vs. Starting One Up

There are obvious advantages to buying a pre-existing business rather then starting one from scratch. There is risk either way. Your decision depends heavily on the amount of risk you’re willing to incur. Keep in mind, the old adage: “if you fail to plan, you plan to fail,” applies to both.

 

Advantages of buying a pre-existing business: 

 

An existing business already has a proven track record, and should be generating revenue to where you will be able to give yourself an immediate income.

 

In most cases, the current owner is willing to train because he or she wants to see the company or business they worked so hard to build continues to succeed.

 

Additionally, if the current owner is offering owner-financing, it is in his or her best interest to make sure the new owner can handle the business.

 

With an existing business, the current owner has generally figured out what works and what doesn’t. If the business you’re seeking to buy is being sold because of financial difficulties or struggles, you can talk with the current owner to find out why. Sometimes it’s as simple as an owner not being able to commit the time necessary to grow the business.

 

An existing business is a package deal. Everything is already in place; employees, equipment, vendors established, clientele established and hopefully a good reputation established.

 

Financing is easier to secure on an already established business, since the financial institution can look at the business’s record to determine its financial stability.

 

What to look for when buying a preexisting business:

 

This depends on the type of business or industry you are considering investing in. My one-word is very simple: Research! The more research you do, the more questions you’ll have and the more questions you ask, the more you are able to minimize your risk.

 

A couple of standard things to look for are:

 

Look at the past, current standing and potential of the business/industry to establish its future. Where is the industry trending? Remember video stores and VHS tapes? Imagine buying a video rental shop in 1999. The trend was headed toward DVDs, which would require a great deal of investment in new inventory. Know where your industry is heading before you buy.

 

·    Location. Does the business depend on foot traffic for survival? If so, is its location good? Has the town’s “hot” spot (where your new business is located) moved, taking clientele with it? The business’s financials will demonstrate a downward trend if this is true. If visibility is not important, then how is your new business’s location centralized to the clientele it is catering to? 

 

·    Competition. Who is your competition? Where are they in proximity to your location? Are any of them getting ready to move into the area?

 

·   Reputation. What is this business’s reputation with vendors, customers and the community? Don’t take the current owner’s word for it. Ask around.  

 

· Internal operations of the business. How is this business structured? Are there benefits? Are employees happy? Is there heavy turnaround?

 

· Financials. You will want to have a CPA review the last 3-5 years of financials and 1 -2 years of monthly P&L’s.

 

   For additional reading on buying a business go-to VenturePointOnline.com “Resource Library” page; http://venturepointonline.com/ResourceLibrary-Buy.aspx#buy

 

 

 

 

 

 

 

 

 

 

 

 

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7 Responses to “Advantages of Buying a Pre-existing Business vs. Starting One Up”


  1. 1 Greg May 18, 2007 at 1:58 am

    I am a deployed soldier and I am coming home soon. I really want to start a business or a pre existing one. But my wife does back me because that would take all my time and I wont have time for my family. I don’t have much money to get a business. I was just wondering How I would go and get the finances I need to be my own boss. It was always my dream to own my own business. so any help from you guys would be appreciated. Thank you

  2. 2 Karen May 18, 2007 at 5:26 am

    Greg,
    In funding a business the philosophy is to borrow against your money by using someone else’s. So naturally to borrow money you must have money. However, it is still not that easy to borrow money from an institution. They usually want everything including your first born. There is a lot of red tape, not to mention time consuming. This is why quite often people looking to buy or expand their business choose to find other sources for funding; second mortgages, savings, inheritance, credit cards and borrowing from family or friends are all typical avenues used. Also, some people going in business are fortunate enough to have a spouse or a back up income to help hold them up while they get their business off the ground.
    If you do intend to approach a financial institution for funding you will need a good business plan in place. They will also want to see what level of financial risk you are willing to carry. If one bank turns you down, don’t get discouraged go to another. Be sure to inquire about an SBA loan (small business administration loan). For more information on an SBA loan go to http://www.sba.gov.
    Funding for a pre-existing business can be a little easier to obtain. The business will already have a proven track record. You also have the possibility of the current owner financing at least part of the business. And if this is the case, the current owner is usually willing to train not only because they want to see the company or business they worked so hard to build continue to succeed, but it is in their best interest to make sure the new owner can handle the business.
    If you do go the direction of a pre-existing business, I can’t stress enough to research what it is you’re buying into. From the financials, to the internal operations of the business, it’s reputation with vendors and customers, as well as who are the competition and where are they.
    Greg, I have answered your question on a condensed version of my own personal experiences. I hope that I have been of some help. If you have any other questions let us know. Please keep in touch; I look forward to you one day sharing your success story with us!
    Karen Torbett
    Venture Point, LLC

  3. 3 Bryan May 22, 2007 at 1:15 am

    I am also looking into financing of a business. I’ve seen advertisements about “free” federal grant money for people starting up a business. Does anyone know anything about this?

  4. 4 Karen May 22, 2007 at 8:08 pm

    This is something that I researched some time ago. I also kept seeing the advertisements and infomercials about free grant money for start-up businesses. Out of curiosity I bought into one of the programs for $12.95 just to see what information I would receive.
    I was placed on an e-mail list that notifies me of federal grants that come available. Currently I am still on this list, and have yet to see anything for small business start-up or for business expansion. The majority of the grants seem to be for environmental and health issues.
    I decided to research further by going straight to the horse’s mouth; and called the Federal Grant Department in Washington, DC. I was told that no such grant money exists and that they cringe every time one of these infomercials goes on the air because they are bombarded with calls from people such as myself trying to find out about it. The person that I spoke to went so far as to tell me that they to have a business on the side as well, and that if this money existed they to would be tapping into it.
    By the way the program that I bought into for $12.95, came with a money back guarantee, I did request a refund.
    Karen Torbett
    Venture Point, LLC

  5. 5 Contractor Limited Company January 17, 2012 at 1:16 pm

    I am looking into purchasing a bar or delicatessens. I’ve already looked at some locations. My grille is what are the advantages disadvantages of purchasing a bar foods shop? One obvious powerfulness is pre existent clients but the measure is more of a sports banister and I want to turn it into a something more resembling a club (it’s near a few colleges). That will probably estrange some of the subsisting clients. I lately need some insight. Should I get down from home run? Letting buy? If you have experience contained by this mat.

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