Many people grow up dreaming of owning their own business and believing that being their own boss will lead to a better life, but this isn’t always the case. Most entrepreneurs in recent years have been venturing into acquiring businesses rather than starting one from scratch in hopes that it will lower the risk. However, the issue they face is that they are blinded by this idea of a decreased risk to reward ratio and therefore forget some of the pitfalls of buying a business in the short and long term. Here we help you understand some of the main drawbacks of purchasing a business so if this is something you are considering exploring, you are in possession of the facts.
Unlike with creating a start-up where the financial investments tend to be more gradual, with buying a business you will need to invest a substantial amount of money up front. There are a lot of costs that you may not have previously considered such as fees from business transfer agents, solicitors, accountants, advisors, surveyors etc.
Depending on the business you are acquiring you may find that you need to invest money on top of what you paid. Often you may see that a business has been neglected and feel that a small cash investment will increase its chance of success but this figure could potentially be a lot more than you initially thought. It is important to be completely realistic as to what investments need to be made and how much you are willing to put in before making a final decision.
In most cases vendors are happy to stay on with the business and transition with the new owner but this isn’t always the case. You can’t assume that they will be willing to honour agreements they made with the previous owner or automatically renew contracts. This is something you will have to consider and renegotiate.
You must always bear in mind that the owner is selling the business for a reason and whilst they may tell you it is due to age, wanting more time with family etc. there is the possibility they are abandoning a sinking ship. In any case you must thoroughly look into every aspect of the business to see where it is at and what its future looks like.
Creating a start-up means you hand pick your staff yourself but when acquiring a business you are taking on staff that are already a team and are familiar with the previous owner. They may not be happy that they are getting a new boss and this could potentially damage morale and efficiency of the business. It is important to gauge the feeling before making any decisions as the people are what make a business.
Whilst the business may appear to be doing fine, the current owner may be aware that the industry as a whole is not doing so well. If it looks like the situation isn’t going to improve this may be a reason for them to leave. It is important to look not just at the business but the sector as a whole to get an accurate feel for your future.
If you are considering purchasing a business it is importune that you have the right advice in every aspect of the purchase. This means you will need business transfer agents, consultants, solicitors, accountants, not just the advice of those closest to you. With the correct team you should be confident that you are making the correct decision for your entrepreneurial future.