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