This article are provided for information purposes only, and are not intended as legal advice.


Buying a business vs starting a new business

June 8th, 2009

There are significant differences between buying an existing business, buying a new business – i.e. a new franchise or starting a new business. The easiest way is to look at the pros and cons of each

 

buying an existing business – pros

  • has current cash flow
  • has current customers
  • has existing staff
  • suppliers are already established
  • may have a long history and significant goodwill in the name or location

 

buying an existing business – cons

  • you have to determine where is the company on its life cycle – are sales increasing, stagnant, has the company reached its peak or is the company goodwill declining and customers are leaving
  • if customers were poorly treated, there may be some time needed to re-establish the brand name of the business
  • some business could disappear if the customers were only there because of the old owner of the business
  • lease could be expiring and unable to renew
  • may owe suppliers lots of money and suppliers want you to establish your own credit and could initially put you on COD
  • may be difficult to finance the purchase price of the business if the majority of the purchase price is goodwill

 

buying a new franchise business – pros

  • may be in a good location
  • no skeletons in the closet
  • can hire all new staff who suit your personality
  • get training from franchisor

 

buying a new business – cons

  • no history of sales and traffic flow therefore there is a risk that sales may not materialize
  • no immediate cash flow because there are no customers
  • staff not trained therefore service initially may be questionable
  • may find it difficult to finance leasehold improvements and get working capital in today’s banking climate

 

starting a new business – pros

  • may have relatively low capital
  • may be able to keep overhead minimal as company is starting up
  • do not have to pay goodwill for someone else to set up the business
  • if you are able to bring over customers from your contacts, you could have immediate cashflow but did not have to pay anyone for the customer list

 

starting a new business – cons

  • no history of sales and traffic flow therefore there is a risk that sales may not materialize
  • no immediate cash flow because there are no customers
  • may find it difficult to finance your business and get working capital in today’s banking climate unless you have personal assets to pledge to the bank

Filed under: Business strategies — Gary Landa @ 9:18 am


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