Advantages And Disadvantages Of Buying A Business

Buying an existing business might be a better alternative to starting up a new business. For one, if you’re planning to buy a business with a positive sales performance, it will be easier to seek approval of institutions that will serve as your financial sources like banks and other investors. The established customer base, as well as the cash flow and the existing assets, will be a good indicator that you’re all making a good investment.

As for a start-up company, it might take a longer period of time before they earn profits. Owners of these businesses might have to cover expenses in the first months of the operations before even generating income from it. But an existing business can already generate profits for you starting day one of your ownership.

What’s also good in acquiring an existing business is that equipment and fixtures needed for the operations are usually inclusive in the transaction already. Apart from the physical assets, suppliers, staff, and reputation are also turned over upon acquisition. It’s deemed less risky given that you are already equipped to keep the business running.

One thing that you may consider as a downside is that funds needed to purchase a existing businesses are usually than the needed capital for a start-up business. This is obviously because of the inclusions in the purchase. You may want to consult professionals like a valuation expert, broker, or an accountant to validate if the value is reasonable.

There might also be a need to renegotiate outstanding contracts and to pacify staff that might react negatively due to the turn-over. The need to shell out more money to make the business even more profitable might also arise once the ownership is transferred.

What is the right business to buy?

To know the right business to purchase, you have to assess your needs and lifestyle. Are you ready in terms of the physical, financial, and emotional aspects to manage the business? Do you have the skills and experiences to match the nature of the business that you’re eyeing? You must also have the right type of resources for the operations. More importantly, you must have the right vision and a strong commitment to make the business successful.

You may look for business for sale advertisements in newspapers, magazines, and online marketplaces. If you’re eyeing a certain business that is Toronto-based, you may consult local print ads and the website Business Buy Sell in Toronto for a wide list of businesses on sale. 

Assessment of the chosen business

Examine the business that you are planning to pay for. You must need to do the following to have a clearer understanding of the business:

Conduct due diligence and assess the risks

In doing  due diligence, a buyer has the right to ask for copies of financials dated three years back, list of physical assets and location/s with their corresponding values, copy of lease agreement if there’s any. Make sure that all equipment and necessary tools for the operations are in good shape and are functioning.

Have it valued by an unbiased valuation expert

There are methods to calculate for the value of the business:

  • Return of investment
  • Asset value
  • Market value

It’s advisable to tap an accountant or broker to help you with this so that you’ll come up with a sound value estimate.

Manage the existing staff

There might be a need a need to process some requirements for the employee entitlements once the acquisition is done. It’s best to consult a lawyer or someone you know in the labor and employment government department to know exactly what you need to do.

Know the tax implications once you acquire the business

Again, consult an accountant or a tax professional to know exactly your tax obligations that come with the purchase of the business. There might be tax rules specific to the area, say Toronto that you need to adhere to.

Making the offer

After making the assessment of the business, the next action step is to provide the offer to the seller. To make it legally binding, you need to seek the help of a lawyer. Agreed terms and other transfer arrangements must also be put into writing by the attorney for your own protection.

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