Owning a business can be achieved by:
(a) starting a business from scratch or
(b) buying an existing business or part of a business.
Advantages to buying an existing business include:
- you are your own boss
- more tax effectiveness of family income
- the potential financial security and if the business is an existing business
- there are existing customers and contracts, existing suppliers, existing staff, management and goodwill associated with the name and location of the business, plant and equipment, stock and materials, knowledge and information from the existing owner
- premises and lease are already negotiated and the premises are generally fitted out
- financiers are more comfortable lending to an existing business because there is minimal time to cashflow the business and the business has a track record which can assist in obtaining the most appropriate finance for your requirements.
The disadvantages of buying a business include:
- risk associated with business failure
- customers may leave when a new operator takes over the business
- staff may not remain with the new owner and critical staff need to be comfortable with the new owner
- the equipment may be inefficient or obsolete requiring costs to make it effective
- the business premises may be inappropriate or the lease terms may be non commercial
- the business may be overpriced
- material contracts may be lost with change in ownership
- new competitors may emerge making the business marginal
- major clients may, for any number of reasons, cease using the business,
- longer working hours are generally associated with business ownership relative to employment
- income can vary far more so than under an employment scenario
- you have legal risk and exposures that you would not have had as an employee
There are significant risks in owning and operating your own business and it is a matter of assessing those risks. You should consider these in the context of the potential profit upside to help you in your decision making.