8 Benefits of Buying an Existing Business

There are many ways in which you can start your own business. Some of those starting paths are buying a franchise, buying a wholly or partially functional business, and starting from scratch. Each of these paths has its type of advantages and disadvantages. But when these are compared and contrasted, you will find a better one sometimes.

This article will elaborate on the benefits of purchasing a business. For some cases, it will also compare and contrast two main types of business starting methods. These two methods are buying an existing business and starting from scratch. And finally, the article will draw a conclusion from which the better one will be justified.

While you buy an existing business from an owner, you may find the business is fully or partially functional. Sometimes, you may find a business that is not functional at all. We, in our subject matter, will consider the business which is fully or partially functional. We, also, will take some variables such as Experience, associated risks, financial statements, existing cash flows, financing sources, product recognition, branding, customer base, market share, & production base and find our desired one.

8 Benefits of Buying an Existing Business

The following points will elaborate the reasons why sole proprietors and business owners sell their businesses. 

Experience you need

When you buy an existing business, the current owner will teach you how you will run the business for the first couple of weeks if not months. This is only because he/she must teach you such things. Otherwise, it does not make a sense to buy an existing business. Conversely, if you start from the beginning, you will have to achieve the experience gradually. And none is going to give you instructions to run your business because none is liable. So, when you do not have any experience to run a business, buying a business can be beneficial for you.

Associated Risk Consideration

When you buy an existing business, the risk is already calculated by the existing owner. You do not need to recalculate the associated risks with that specific business. Also, the business already has existing employed people, suppliers, and customers. Also, the owners will show you the ways to reduce the risks as he/she did before. On the other hand, buying a business has much more associated risks. Though you can calculate the risks, the uncertainty is higher. And none is going to tell you exactly what to do.

So, if associated with risk and managing the risks are considered, buying an existing business is the better choice.

Financial Statement Analysis

When you are buying a business, you already have access to the previous balance sheet, income statement, and cash flows of the company. It will help to analyze the past performance and current condition of the business. It will help you to evaluate the company and the valuation process as well. Oppositely, if you starting from scratch, you do not have any balance sheet or income statements. You need to gradually invest and make the business functional. As you have existing financial statements, it is a better decision to buy a business.

Important accounts you must check in the Balance Sheet:

• Accounts Receivable – you can get an idea on how much receivable the business has by seeing the history which will give you the condition of bad debt as well.
• Playable – you can get an idea of how much money other people owe to the business.
• Inventory – it gives the idea about the inventor the business currently has on hand.
• Property & Plant – give you an idea about the property and plants.

Running Cash Inflow

When you buy a fully or partly functional business, it is already giving you cash flows as it is selling the products or services in the market. In other words, people are buying from the business. In contrast, when you start from scratch, you need to build the customer base gradually. It will take an unknown period to make a profit. So, if you buy an existing business you buy the running cash flow as well.

Financing

In the time of changing the ownership, the source of the fund should be given the most important. What type of financing you will prefer in the case of buying a business? For an existing business, it is much easier to gather capital from banks or other sources. Because, the company you are buying has a value as it has a customer base, assets, and brand recognition. But in the case of starting one, it is much difficult as the business in the initiation phase. So, in the case of buying an existing business, financing is much easier.

Product Recognition and Brand

When the product has been sold in the market for some time, it has the demand it the market. As there is a demand, there is the recognition of that product as well. And the quality of the product or service served ensures the value of the brand. In the case of a functional business, its products are recognized. On the contrary, while new business is launched, you need to create product recognition and brand value gradually. If the product recognition and brand value are considered, buying a business gets the most priority.

Existing Customer Base and Market Share

An existing business has an existing customer base. As it serves to the customers, it has a market share as well. When the product is recognized, that we already discussed earlier, the company must have the market share. Conversely, if you start from scratch, you need to grab the market share. You need to work on product recognition and branding. But in the existing business, you can work for the betterment of the market share from the first day. So, if you consider this factor, buying a business is more beneficial.

Existing Production Base and Plants

If a business has the setup of the plant, the production base, and factory then the existing owner has already done a lot of works for you. You already have the production base. You need not set up the factory again. But, when starting from scratch; you need to set up the factory by yourself. So, for this case as well, buying a business has the advantages over starting from scratch.

Other benefits you can get while purchasing a company

• Brand: You may have a recognized brand. All you have to do is to continue with it.
• Proven Concept: The concept of using the company is already proven. So, buying this business is less risky.
• Customer Relationship: With the business, you are also buying the relationship of the customers. There are already many existing customers of this company. All you need to do is taking it to the next level.
• Focusing: When you buy a business, you already have an established company. Now you can give full concentration on giving effort for the growth of the company.
• Existing employees: With the business, you are also buying the employees. You do not have the extra hassles of recruiting new employees.
• Risk Factors: Many entrepreneurs think its less risky to buy an existing business which giving reasonable cash flows periodically.

In conclusion

Of course, starting from scratch gives you the opportunities to learn about your business gradually but still buying an existing business gives more opportunities for surviving in the long run. If you want to start your own business, buying a business can be a great idea considering the above points.