Whether you are a budding entrepreneur keen to dive right into the corporate world or a seasoned director at the helm of a well-established company, at some point, you may find yourself pondering the pros and cons of purchasing an existing business.
Acquiring can have several significant benefits, not least being able to avoid the lengthy and undeniably risky business of launching a company from scratch. However, there can also be some serious downsides that must be carefully considered before embarking on such a substantial venture.
To help you make an informed decision, this insightful guide will cover:
- The advantages of purchasing an existing business
- The disadvantages
- How to find the right business to acquire
- How a business broker can help
First things first, let’s take a closer look at the benefits of acquiring.
The advantages of acquiring an existing business
1. The infrastructure is already in place
Arguably, one of the most substantial benefits of acquiring an existing business is the fact that all the hard graft of building up the infrastructure has already been done for you. Depending on what kind of company it is, the business you are planning to buy will already have its own premises, supply chain, logistics, and loyal customer base in place.
All you need to do is take over the reins and ensure a smooth transition to new ownership, keeping the current team, suppliers, and customers happy as you do so.
2. Existing cash flow and revenue
Another significant advantage of buying an existing business is that it will already be generating revenue and, hopefully, have a healthy cash flow established.
This means you will have financial resources to draw upon from day one, allowing you to focus on profit-making and finding areas that can be improved upon to maximise the company’s operations.
3. A recognised brand
One of the biggest hurdles you face when starting a business from scratch is developing your brand’s reputation and building up a loyal customer base. By buying an existing business, you avoid this obstacle and benefit from an established (hopefully very positive) reputation and a fully formed brand.
This leaves you free to concentrate on taking advantage of the company’s existing relationships with suppliers and clients and widening the current customer base if required.
4. A knowledgeable and experienced team
When you acquire a business, you also acquire its employees. As a result, from your first day at the helm you will have a confident and experienced team in place, who know their responsibilities inside and out and can proffer their unique expertise to help you run the business effectively.
This is particularly beneficial if you don’t have much experience of the industry your new business is part of.
5. You can learn from the company’s past successes – and mistakes
An existing company will have a well-documented history for you to draw upon, giving you valuable insights into what products or services work best and which ones haven’t been as successful.
This information can be used to your advantage, going forward, especially if you are thinking about investing in new revenue streams.
The cons of buying an existing business
Now it’s time to explore the downsides of acquiring so you can weigh up whether such a substantial undertaking is the right path for you to pursue.
- Buying an established business can be very expensive
As you can imagine, acquisitions can require the expenditure of significant sums of money, depending on the size of the business and how much turnover it generates. As a result, you could find yourself paying anything from £30,000 to £300,000 or more.
This is why it’s important to have a thorough valuation of your acquisition prospect. The seller will probably have already done this as part of their preparations for exit, to ensure they are setting a fair price and receiving enough return on their own investment, but if they haven’t then it’s vital that you have one done.
If you opt to use a business broker to handle your acquisition, they can value the business for you so you will get an accurate picture of how much it’s worth.
- There are always potential risks involved
As with any significant purchase, inherent risks will be involved in the acquisition. The company you’re buying could have hidden financial issues or be involved in some kind of legal trouble.
This is where the importance of due diligence cannot be overstated. This process gives you the opportunity to discover any hidden pitfalls that could render your potential acquisition a doomed endeavour from the start.
Due diligence also allows you to evaluate other critical aspects of the business, such as its existing contracts with suppliers and employees, which you will be bound by. In short, this fact-finding stage of the acquisition journey will give you an accurate picture of whether your prospective purchase is likely to be successful or not.
- Integration can be a tricky and sensitive process
Finally, another potential disadvantage to consider is the matter of integration once the deal has been completed. Taking the helm of an established business with an existing team and client base in place can be a complicated task, especially if some of them aren’t too happy about the change of ownership.
As you negotiate the transition phase, you will need to handle things with tact and care, to ensure no one feels unduly disgruntled by the change in circumstances. Starting off on a positive note with everyone concerned will help to make the integration smoother and less stressful.
How a business broker can help
Clearly, there are significant pros and cons to acquiring an established business. The key is to carefully weigh up the unique risks and benefits of buying a particular company and deducing whether it would be the right move for your own enterprise.
To help you make this decision – and to orchestrate the entire acquisition journey – you may wish to hire the services of an experienced business broker. Drawing on their specialised resources and expertise, they can guide you in the direction of acquisition possibilities that would be the right fit for your company, and they can help make the process as hassle-free as possible.
For example, a multi-service business broker like Harris Acquire will assist you every step of the way, from providing potential acquisitions to explore, to making initial contact, tackling due diligence and negotiations and, finally, sealing the deal.
If you would like to start your acquisition journey, don’t hesitate to give us a call on 01926 757100 or send an email to Hello@harrisacquire.com.