Why To Not Buy an Existing Business

By | March 1, 2015

Many businesses are for sale due to problems.

The following is a list of many reasons business are sold:

  • Insufficient profits
  • Death or illness of a working partner
  • Disinterested heors of a business
  • Partner or shareholder dispute
  • Management burnout
  • Forced liquidation or sale
  • Fear of new competition
  • Lack of desire or capital to do necesssary remodeling
  • etc

You are better off starting with a clean slate than inheriting someone else’s problems. If a business has a poor reputation with customers, has trouble with suppliers, or poorly located, it is not wise to assume that because there is new ownership, customer will automatically change their opinion about a struggling concern. Too many business buyer have learned the hard way that it takes a long time to restore confidence in a business and have regretted not starting anew.

Buying a profitable business will cost more initially. The seller has build an established business and will expect to be rewarded with a high selling price. Capital limitations might prevent the purchase of such a business and it may be more economically feasible to take the risk of creating new business with less investment.

Also you can consider purchasing part of, or investing in, an established business. But the risk that there might be little compatibility between the parties that have been more or less forced together for economic reasons. A bad partnership arrangement prevents a business from building the teamwork that is so essential for its success.

The employees currently working in the business may have to be replaced due to poor training and habits of the former owner. In this case, you’re better off starting anew than to try to change old habits.

It may necessary to invest money to modernize the operation. You do not want to buy equipment or machinery that will not perform to your expectations for future business activity.

Source: The McGraw-Hill 36-Hour Course ‘Entrepreneurship’

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