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