If you are thinking about starting your own business, you might be presented with a number of potential opportunities and options. Not least of which is the form your business should take. You might even be in a fortunate position of being able to take over someone else’s business. People often look to retire or move on, they might simply be looking to sell their premises or perhaps they’re thinking about selling the business as a whole. The question is would you be better off buying an existing business or starting your own limited company? There are merits to both choices.
Advantages of Taking Over a Trading Business
Taking over an existing business might be an option for you, but what are the advantages and disadvantages? There are a number of potential advantages to buying an existing business rather than starting your own from scratch:
- Security – The obvious advantage of buying a business that is already trading is the security. Taking over an existing business is far less risky than starting entirely from scratch.
- Track Record – An established business is likely to have:
- A good customer base,
- A healthy credit rating
- Good accounts,
- Existing relationships with suppliers; and
- Some sort of establishment within the community.
- Employee Experience – An existing and trading business is likely to have experienced employees available to help run your company. They will be able to teach you what you don’t already know about your new undertaking.
- Existing Cash Flow – Unlike starting your own business, buying an existing business means you can rely on cash flow right from the start. There will be fewer struggles trying to reach break-even point and keeping your business afloat.
Of course you will need to do thorough research to ensure that this is the case. Last thing you want to do is buy a business with a bad reputation which you can’t turn around or purchase a business with serious debt problems.
Disadvantages of Taking Over a Trading Business
The disadvantages of buying a business are equally obvious.
- Cost – You will probably pay a premium to buy an existing business. The owner will have spent time and money building the business and they won’t want to sell at a loss.
- No Guarantees – There are no guarantees of success. Just because a business has been trading doesn’t mean it has done so successfully, nor that you will if you take over. It might be based in the wrong location, have a poor client base, bad debt and many other potential problems. You also don’t know about potential legal issues – are there any copyright or trade mark claims against the business? Is there outstanding debt? How is the relationship with suppliers?
- Learning Curve – Even if you know the industry, you won’t necessarily know the business. Taking over someone else’s business means you will have a lot to learn. Working out how the business operates, what its failing are, potential pitfalls and dangers. All of these things will take time.
- Fixed Furniture – Buying a trading business means you’re taking on already existing and established practices, people and places. You might be required to keep existing employees on or use the established suppliers, which could work to your detriment. You may not be able to make the business your own in the same way that you could when starting from scratch.
- Research – You will need to carry out thorough research before purchasing an existing business; otherwise you risk taking on a potential hazardous undertaking.
Alternatives To Buying a Business
There is another alternative to buying an already trading business. You could buy a dormant or vintage company – a company which has already been established and registered with Companies House but never traded. These kinds of company have some of the advantages of existing businesses without the potential disadvantages. For more information see our article on the advantages of vintage company registration.
Starting Your Own Company
Quite often people realise the most preferable option is to start their own business or carry out a company formation to register a new limited company. The advantages of limited company formation speak for themselves. But what are the advantages and disadvantages of starting from scratch?
Advantages of Starting Your Own Company
There are a few advantages to starting your own company rather than buying an existing one:
- Making it your own – Establishing your own company from scratch allows you to make it your own. You can run it how you want (within the boundaries of the law) without needing to conform to the expectations of an existing customer base, current employees or suppliers.
- Lower costs – Although it won’t be cheap to start your own business and grow it into a success, it will probably cost less than purchasing one that already exists. Costs will also be traceable and you will be able to manage where you are investing your finances.
- Clean slate – Starting from scratch there is less risk of unexpected problems, debts and issues hidden by someone selling you there business.
- Flexibility – You can make the business plan and do the research, then decide on the best possible location for your business, who to hire (and fire), what equipment to buy, which suppliers to use and much more. Starting your own business you can be as flexible as you like.
- Your brand – Starting your own company allows you to choose your own business brand- Pick a suitable logo, establish a set of principles, work on your own look and feel. All of these things will already be decided for you and well-established when buying an existing business.
Disadvantages of Starting Your Own Company
There are some disadvantages to starting from scratch. They’ve probably already crossed your mind.
- Risky – Starting a business from scratch is obviously risky. You will need to build you business, establish a client base, balance the books and market your goods and services just right if you hope to survive, never mind turn a profit
- Hard work – Buying an established business won’t mean there’s less work, but starting from scratch will involve a lot of hard work to turn your business idea into a success.
It’s best to thoroughly weigh up your options before you get stuck into business. Here at The Company Warehouse, we’re determined to make things easier for you, which is why we’re offering FREE Company Formation to everyone looking to start a new company of their own.
- Buying an existing business (Business Link)
- How to buy a business (Entrepreneur.com)