If you are keen to become a business owner and yet have no taste for the slog of starting a new venture from scratch; buying an already established concern may seem like a tempting route into the world of business ownership.

It is true that there are many advantages to acquiring an existing business; not least the potential to save a lot of time and effort. It is often viewed as something of a short-cut into business, as someone else has already shed the necessary blood, sweat and tears that are the inevitable cost of launching a new enterprise, but it is important when considering business acquisition as an option, to stop yourself from falling into the trap of seeing it as an easy alternative, for this is far from the truth.

Before even looking for a possible purchase it is essential to find an accountant to advise you of the various issues involved, or, if you are looking to expand by buying a business to add to your existing operations, it is vital that you sit down and consult your own accountant; an accountant’s experience will be invaluable to you throughout the process.

Probably the biggest disadvantage of buying an existing company will be cost; you are of course buying the afore mentioned blood, sweat and tears along with the concept, customer base, brand and ‘goodwill’ associated with the name and not just a set of fixtures and fittings. It is often this very stress and effort spent by the business’s original founders that causes them to be over-optimistic about the market value of their business, to ensure you are paying a fair price there really is no substitute for good research and professional advice.

If your budget does stretch to the greater initial outlay involved, it is important to consider the flip-side of those valuable assets mentioned above: for instance, if the business does have a loyal customer base this may at first appear very beneficial, but customers may associate any goodwill with the previous owners and leave when you take over the business. The ‘brand’ is established yes, but what sort of reputation does it have? A negative image associated with a particular name could end-up costing more time to fix than starting a completely new venture.

Cynicism in business is often a valuable tool; it is probably a good idea to ask yourself why any particular business is for sale: hidden debts or underlying problems may have given the owners a need to offload and this will not necessarily be reflected in the cost; even business owners passing-on a dud may have an over-optimistic view of their business’ value. With this in mind there are probably a few things it is worth investigating: check carefully any profit trends and projections to confirm that the business is moving in the right direction; there should be forecasts available; Check the operations of the business, including sales, costs and assets. It is when reviewing the financial records that you’ll most need an accountant to step in, good accountants will offer a ‘due diligence’ service to thoroughly vet the financial health of your potential purchase.

If it is an existing business that you have decided will work best for you it is important to remember that unlike a brand new venture, which is something that can grow from your own vision, a going concern already has many people’s lives caught up in it; even after the business founders have handed over the keys and stepped aside, and the faithful customers have made a decision to either give you a try or vote with their feet, you will often still have others, not least any existing staff to whom you bare not only a moral responsibility, but also a statutory obligation with regard to their employment.

In short although there is often less personal stress involved in buying an established company, there is usually also less flexibly when you are inheriting someone else’s dream. You need to be very honest with yourself about whether you are happy to adapt what is already there and work within the existing framework.
Buying a going concern is a lot like buying a second hand car or an old house, and just like buying a second hand car or a house, the need for care and due diligence cannot be over estimated.

By Marco Lombardo