Buying an Existing Business

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The advantages of buying an existing business include:

  • Established product or service

  • Established "goodwill"

  • Management team in place

  • Existing collateral

  • Reduced start-up time and cost

Unlike a new business, an existing business will likely have a product or service that is familiar to consumers, suppliers, lenders, and employees. Similarly, the business will, hopefully, have established "goodwill": the intangible value of an esteemed business, typically measured by the amount of money for which the business is sold beyond the cost of its assets. In other words, a business's goodwill is the goodwill that the business engenders among those with whom it conducts business. Goodwill adds value to the business, and for this, you pay extra. A further advantage is the business's management team. Since the business will likely have experienced managers already employed, you will save time and money in training, and if you are unfamiliar with the business, you will have an invaluable source of business knowledge at hand. An existing business can also provide the collateral to secure the necessary funds for your purchase. Last but not least, primarily because of the advantages discussed, is the reduced start-up time and cost involved in buying an existing business. Since the business is already established, you will likely need only to infuse the funds required to continue operation.

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