There are many advantages and disadvantages in buying an existing business.
Operational Matters
- Business administration already in place and working.
- Established pricing.
- Shop fitting already in place and operating.
- Restricted by existing premises and fittings.
- Inherit stock choices of previous owners. You may have to write down any product lines that do not sell and are just occupying shelf space.
- Inherit existing supplier agreements although they may not be favourable.
- Established payroll and administrative procedures.
Lease of Premises
You will have an existing premises and lease so there will be no need to find these, but equally you may be locked into an existing lease that may not reflect current market price. The existing leasehold may not be secured and the landlord can legally refuse to renew or transfer the existing lease, so there is a risk that you may have to relocate the business.
Valuation
You are totally reliant on your advisors making an accurate valuation of the existing business. You may be purchasing a failing business or there may be unforeseen or hidden risks. You will need to establish the real motive of the existing owners for the business sale.
Staffing
You will be inheriting existing staff and staffing costs. This may be an advantage or disadvantage depending upon your plans for the business. You must be clear of your intentions and the repercussions of any changes. You may be inheriting experienced staff so the daily operation is guaranteed and no training will be necessary. However, if you find yourself laying off any existing staff, there will be costs and possible legal difficulties. There may be a risk of losing goodwill locally if you lay off an existing employee.
Buying Costs
- Extensive legal costs.
- Accountancy costs of valuations.
- Time involved and costs of due diligence.
- Purchase cost of goodwill.
Product Ranges and Product Selection
Products and suppliers already exist so product selection is not a concern as long as the items are selling well. You will still need to monitor what sells and what does not. You may be locked into contractual agreements with existing suppliers so there may be difficulties changing product lines.
Goodwill
- This is a major part of what you are buying. There should be considerable goodwill from existing customers as the local brand already established.
- There is always a risk that you may inherit possible negative brand values and 'badwill'.
- You may experience loss of goodwill due to change of management (charismatic owners).
- The existing owners may have a skill or expertise that is a major asset of the business that you will lose when they go.
Independence and Creativity
You will be losing out on the creative part of any start-up business. It is clear from our research that many prospective business owners look to buy an existing business or franchise because the task of launching a new business from scratch just seems too overwhelming.
This is where Retail Business Consultants can really help, because we will teach you everything that you need to know to launch your own business. We aim to take away the uncertainty and prevent you making any of the obvious mistakes that so many new business owners make.
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