If you are considering buying an existing business, you will likely have a sense of security because you’ll have a good idea of what you are getting for your investment. However, not everything is always as it seems, so you need to do your due diligence to ensure you make the right decision.
A business you purchase as a going concern has a lot of advantages over starting one yourself. For example, you get immediate access to things like:
Existing clients and goodwill
Existing clients, customers, providers and staff are included in the ‘package’ if you buy an established business. Having these resources in place remove much of effort and cost required to produce goodwill, branding, publicising and hiring staff.
Finance and Expenses
Since your business has been operational and your inventory is available, you should only need minimal initial costs. In addition, you can generate cash flow immediately. If you need more funds, it should not be that difficult to obtain them because the business is already established.
Training and support
Training and support can be best given by those who have practical experience with the business. They are the people who can give you the best help that you need.
Though there are a lot of advantages of buying an existing business, spending a lot of money does not ensure future success.
Goodwill may not remain
When there is a change of owners, there is also the risk of losing customers and clients. Employees may wish to leave and you may have to pay them their separation benefits. The departure of the original owner may negatively affect the business so you cannot really ensure the current sales and profits will continue.
The business’ bad standing or poor impression in the past may be harder for you to overturn.
Facilities and Equipment
Facilities and equipment may be out-of-date and may require repair, replacement or addition.
- Carefully look into the business you are interested in.
- For an expert opinion, set an appointment with your business adviser, accountant or solicitor.
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James HuyVuong is a CPA and the owner of Your Accounting Partners. Partnering with businesses from start to scale thru to sale.