When it comes to going into business, people look at the options they have and whether they should buy a small business or start up their own. Buying an existing small business can be easier as it is already established, has the equipment, cash flow, customers and so on. But it can seem rather daunting when you look at your options of buying a small business and the risks involved. Things to consider:
The business is already established, so you should be able to walk in and see cash flow and customers, as opposed to starting up a business which may require an initial outlay in marketing and sales before you see any money generated.
The business would have equipment in place (that hopefully is paid off or has a manageable loan). Sometimes you will find businesses advertised for sale that are "less then the fitout costs". Which means the owners spent more money on the equipment, decor, furnishings etc then what they are selling the business for. This is one big advantage over establishing your own business, most of the hard work is done in the set up.
Buying an established small business you will be able to see the financials. This will allow you to examine the profit and loss of the business and how the income and expenses are fairing, from there you are able to make management decisions on how to improve certain aspects fo the business to obtain higher profits. It gives you a base to work from in forecasting and preparing a budget based on actual figures. As opposed to starting a business where you are doing a bit of guess work in your initial business plan and budgeting.
An established small business may have an ideal location and a good lease agreement in place, so you can carry on business. There is no need to find a premise and negotiate terms. This could be both a positive or negative in buying a small business, depending on the location and lease agreement.
Most small business have a logo, website, colour scheme and branding they work by. They have a certain % of the marketshare and promote their business with a certain brand message e.g. "best pies in town". By buying an existing business you get to take all of that on. So you dont need to hire someone to do all the additional branding and design work for the business.
Risk: This tends to be the biggest factor people consider when buying a business... Is the business actually viable and are their financial records accurate? Obviously when buying a small business you will want to review the financials and go through a process of due dilligence. Make sure you get a copy of what is submitted to the ATO by the accountant and that the accountant is registered and certifies the documents. You want to make sure you have a firm understanding of all aspects of the business... financials, relationship with suppliers, employees, customers. Emmerse yourself in the business so you can get an understanding of its viabliity. Obviously when starting your own business there isnt this risk.
Reputation: This can be a positive or negative to buying a business. It depends on they type of reputaion the business has. If you have a certain vision for the business and once you buy it start changing the current business model, customers could get upset and stop returining. When you buy an established business you have an expected way to operate and this may limit your ability to be creative or make changes. Obviously when starting from scratch you create the image for the business you desire!
Cost: When you a buying a business you are paying for a number of things including: equipment, assets, reputation, projected income, branding, market share, good will and so on. Depending on your purpose for buying the business, whether it is to continue to grow and build the business or change it around to your own ideals, the initial cost of the business could be higher then you are willing to pay.
At the end of the day it depends on the type of small business you want to operate. If it is something like a Cafe or Restaurant, buying an existing business could be more financially beneficial due to the outlay in purchasing all the equipment and doing a fit out. It just depends on the type of small business you are looking to buy and the vision you have for that business.
Remember to "shop around" and get advice from an accountant, solicitors, business advisors or brokers when buying a business.
Do you own a small business? Did you start your own business or decide to buy an existing? Do you have any recommendations to other people looking at getting into small business?