Advantages & Disadvantages of buying a business?

[Poppet2]

There are many businesses for sale in the high street. Problem is the cost etc. However, many businesses can be easily duplicated without the extra cost of buying the actual business itself.
For example, if you want to run a local sweet shop, the owner of the business is asking say £50K for the business. You will in addition, have to pay for the lease and business rates etc. However, with businesses like this that can be easily duplicated, surely it would be best to wait for the seller's lease to expire, especially if it's in a good location where there is no competition, then apply for the lease, with the same business model. That way you save yourself the £50k asking price. Good or what?

 

[Socio South West]

The purchase price of a business is made up of several elements, all open to debate. In theory it should reflect the cost of setting the business up, the value of the fixtures and fittings and the profit you should make if you duplicate the vendors performance over a relatively short period of time.
If you are buying a lease with the business, then you take over the terms of the lease.... however, the lease may be quite onerous in terms of maintenance which may only come to light at the end of a lease, and will sting quite hard in some cases.

What you save in setting up rather than purchasing you probably lose in earnings until it (hopefully!) gets to the point where you are at the same level as the business you could have bought. You also have to find and negotiate with suppliers which can be incredibly time consuming - and some products included in a business sale may be area exclusive. It can't be denied that often a fresh start is rather better than a purchase, but that decision has to be made case by case.

It's very much a swings and roundabouts question: There is no correct answer and thousands of opinions. If you do go down the purchase route, make sure that whatever your budgets tell you covers your finance costs and pays you something - If only it were always a King's ransom!

 

[garyk]

Depends on the business and how the revenue is generated. Normally the value is in the customer base, a large amount of repeat buyers is attractive as you can get your investment back quicker.

 

[SWGlobal]

Don't forget when you buy a business you buy the liabilities. So, for example, if they have a staff member who has been there for 10 years, you take on the liability of reducndancy costs via transfer of contract.

 

[Blood Lust]

There are many businesses for sale in the high street. Problem is the cost etc. However, many businesses can be easily duplicated without the extra cost of buying the actual business itself.
For example, if you want to run a local sweet shop, the owner of the business is asking say £50K for the business. You will in addition, have to pay for the lease and business rates etc. However, with businesses like this that can be easily duplicated, surely it would be best to wait for the seller's lease to expire, especially if it's in a good location where there is no competition, then apply for the lease, with the same business model. That way you save yourself the £50k asking price. Good or what?

Ask for accounting statements to show to your accountant. You'll know by their reaction if the business is worth what they're claiming. Still, run them past your accountant anyway.

Established businesses have regular customers. New firms dont come with such goodwill and it can take a couple of years to build it.