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


The advantages of buying a business vs starting a home based business

December 4th, 2009

If you are looking to buy a business or start up your own home based business, which one do you do?  There are advantages and disadvantages of both:

 

Advantages of starting a home based business

  • cheaper, low capital, can work out of your home
  • low overhead, may not take much capital to start
  • flexible hours, you can work for a third party while you are starting up your business in order to keep your cash flow 
  • may not have any long term obligations therefore if you were to close down the business, you may not be on the hook for things like premise lease etc.
  • more people will tend to be a sole proprietor which is cheaper to set up than a corporation

 

Disadvantages of home based business

  • many people are not disciplined to be able to work out of their house/apartment, too many distractions
  • if you work out of your house, large companies may not believe that you can service their account
  • may have no ability to expand the business without incurring large additional costs
  • if you are unincorporated, you may have taken on liabiltiies which can affect your personal assets vs having limited liability in a corporation
  • may not have enough storage space for inventory required in business

 

Advantages of buying an existing business

  • you know the existing cash flow of the business and have historical information to indicate sales on a monthly basis
  • has existing customers vs home based business, which you are setting up may not have any existing clients
  • May already has assets including inventory/premise/fixtures where customers are going
  • you are paying more for the business than if you started however, you know the actual cash flow and if it can support the purchase pice
  • if the company is older than 3 years, the risk of becoming successful is greater.  Less risky type of investment compared to a start up business.
  • If company is older than 2 years, you may have certain financing options available to you that do not exist for new businesses
  • you can grow the business and improve what is there vs having to experiment and learn everything the hard way

 

Disadvantages of buying a business

  • more expensive because you are paying someone who has taken the risk to determine if the business concept works
  • if you buy the shares of the company, you take on the risks of unknown liabilities such as tax liabilities.  You may be indemnified by the old owner but you need to pay first, collect from them later
  • may have existing staff who have worked for the business for a long time which need to be retired.  Severance costs could be large
  • higher operating costs
  • may need a bank loan or requires equity in order to carry account receivables

Filed under: Buying a business — Gary Landa @ 2:47 pm


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