The biggest challenge to buying a business outright is the initial purchasing cost and the business transfer costs such as consultants, lawyers, accountants and valuation specialists. Because the business concept, customer base, brands, and other fundamental work has already been done, the financial costs of acquiring an existing business is usually greater then starting one from nothing. Other possible disadvantages include the time and travel required to research the opportunities available and hidden problems associated with the business and receivables that are valued at the time of purchase but later turn out to be non-collectable. Additionally, many acquired businesses lose 5-10% of their customers in the first year after a sale.
Good research, careful planning and following the advice of wise counsel are the keys to avoiding these problems. You can avoid some of the pain associated with new management for the staff, suppliers and customers by negotiating a reasonable amount of time to transition from the current management.
It's often more cost-effective to bring in specific expertise in mergers and acquisitions before the letter-of-intent stage is reached. In fact many acquisition experts believe that it is important to put your ‘resource team’ together early. That is to seek the advice and guidance of business finance experts, lawyer and certified accountant before you begin your search for an acquisition target. After all, most people are going to do this deal once, so it's essential to do it right and put the best total package together to ensure a successful acquisition and success long term.
In order to buy the right business or franchise, you need to do a thorough investigation of its historical performance, its operations, current status, the staff and management, competition, the industry and its future potential. Once all this analysis has been completed, you will then have to determine how it measures up with your skill, expertise and leadership. All of which is so much easier to do with an existing business.
While there are no guarantees in business and the risks must always be managed, buying an established business clearly offers significant advantages worth considering if you want to own your own business.
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Lil Sawyer is Managing Director of FundingLinks Inc., a business capital broker company that focuses on helping business owners and entrepreneurs secure the capital they need to expand and grow their business or complete an acquisition. She can be reached in the office at 905-427-9726 or via email at lil@fundinglinks.com.