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Pros and Cons of Buying an Existing Business, Part I
03/ 28/ 2002


If you've been thinking of starting a business, or have been considering a franchise, you might also consider purchasing an existing business. Such a purchase offers definite advantages and disadvantages, which in today's Workshop contributor Jeff Moses describes in detail.

Pro: Purchasing a business that is already up and running is less risky than starting a new business. Before buying you have the advantage of examining historical cash flows, expenditures, seasonal fluctuations, etc. While making the decision to buy, you can thoroughly review the business' track record, the desirability of the location, the established customer base, any discounts already set up with suppliers, etc.

Con: Purchasing an existing business costs more up front than starting a new business. Theoretically, you can start a new business from scratch for virtually nothing, working from home and funding yourself as you go. An existing business has a purchase price because someone else has gone through the startup phase -- and is, or should be, in a profitable situation at the time of sale.

Pro: Purchasing a business should enable you to start making money right away. If you borrow money to make the purchase, you'll have payments on the loan, but the business' profitability should be such that you can make money above and beyond the loan payments.

Con: There could be hidden disadvantages to the business that limit profitability, or could even cause the business to begin losing money. These may include, among others: an upcoming change in the area surrounding the business that could impact sales; employee turnover could be greater than expected; former sloppiness in customer service could have created a bad name for the business; equipment may be outdated; and the industry itself could be changing, making it difficult for an existing business to keep current with trends in style or with evolving technology.

Pro: Once you take over a profitable business, you'll be able to use your energy and ingenuity to make it even more profitable.

Con: When the existing owner or manager leaves, it could cause some degree of disruption in the business. This would be particularly true if the owner or manager was the main reason for the business' success.

It's usually easier to check the financial history of a business than it is to check the rather intangible points listed in the previous points -- but all of these factors can be just as important when considering future profitability.

Aside from word-of-mouth regarding local businesses for sale, you can locate and contact business owners who have placed their businesses for sale in:

1) Newspaper classifieds under "Business Opportunities" or "Businesses for Sale."

2) Business Brokers (check the Yellow Pages or classified sections described in point #1).

3) Business Newsletters.

4) Classified and displayed ads in Business Magazines.

5) On the Internet: www.mktplc.com, www.bizbuysell.com, or

www.bizquest.com

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