Advantages and Disadvantages of Buying a Business

When buying a business, check to ensure it has a well-developed market for its products or services.
Business of Software - Alex Osterwalder

ADVANTAGES

Licences and permits

The business should have the appropriate licences, permits and registrations. Check and find out which ones can be transferred to you. Check the business records, plans and operations, and familiarise yourself with your competitors and the industry

Existing customers and goodwill

An established business will generally come with existing customers, contacts, suppliers, staff, plant, equipment and stock This eliminates much of the effort and expense needed to generate goodwill, branding, advertising and hiring staff.

Expenses and finance

The business will have a financial history, which gives you an idea of what to expect and can make it easier to secure loans and attract investors.

If a stock is already on hand, your initial expenses should be minimal and you can quickly generate a cash flow. If you need to obtain finance, it may be easier because the business has a proven track record.

Training and assistance

A first-hand experience is valuable, so the previous owner and employees are best placed to give you

the training and assistance you need. The business should have plans and procedures in place, which you can review and adapt.

DISADVANTAGES

Owners may be selling an unprofitable or underperforming business. There could be an opportunity to develop a business, but it can also be risky and time-consuming.

Goodwill may not last

Clients may leave when the business changes hands, so you may have to pay entitlements, such as long service leave. The business may be poorly located or badly managed, with low staff morale. External factors, such as increasing competition or a declining industry, can affect future growth.

Investment

Underperforming businesses may require investment to make them profitable.You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors and accountants.

Premises and equipment

The premises may be inadequate and the equipment or stock may be outdated or in need of replacing or repair.

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