Today we’re going to explore whether or not buying a business makes sense – and the only way to do that is with a good, old-fashioned pros and cons list. Here’s what you should consider when thinking about acquiring an existing company:
Pro: You Inherit A Customer Base
The most prominent advantage of buying a business is that you inherit that business’s customer base. You don’t have to try and generate an entirely new list of customers – as long as you appease the existing ones, you’ll have a steady stream of income. Having a customer base puts less pressure on your marketing and you can focus more on retargeting existing customers or using word-of-mouth/referrals to gain new ones.
Pro: Much Easier To Secure Financing
It’s very unlikely that you’ll have the funds ready to buy a business outright. And even if you do, it’s better to take out a loan so you’re not departing with loads of money from your bank account in one sitting. Obtaining a loan when starting your own business is challenging – but lenders are more likely to give you money if you’re buying a business. Why? Because they can look at the business’s existing financials and see if it’s a risk. Ironically, securing funding is a great way to know that you’ve made a good choice because it’s clearly good enough for the bank.
Pro: You Know The Business Model Works (Sometimes)
If you do enough research and look at the business’s financial state, you’ll see evidence that tells you their business model works. Many people choose to sell their business for personal reasons or just to cash in and move on to something else. It doesn’t mean that business is failing – and you get to inherit a company with a fully-functional business model. You’ll find it easier to boost profits with an existing business model than trying to establish one from scratch.
Con: Could Have High Upfront Costs
The obvious downside of buying a business is that it could have much higher upfront costs than starting one from scratch. Some businesses go for millions, and you’re unlikely to spend that much on a startup. More to the point, you can go after ways to reduce big startup costs anyway, which you can’t do when you’re buying.
Con: May Find Hidden Issues
Who’s to say the business you buy isn’t riddled with issues? There’s no telling what’s hidden from plain sight, only to be discovered when the transaction is over. Many people fall into this trap and buy a business that looks great from the outside but is littered with serious faults on the inside.
Con: You Don’t Want To Be Overcharged
How can you ever really tell the value of a business? The calculations might make sense, but you don’t want to risk being overcharged for the company. What if you pay over the odds for a business and discover it wasn’t really worth that much? At least when you start a business you don’t worry about that.
Do the pros outweigh the cons? They do – but only when you make the right business selection. Be careful and cautious before buying a business so you’re 100% sure that you’ve found a good investment.
