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Frequently asked questions - Buying a business VS building from scratch

Q1. What are the advantages of buying a business?

Most people who have managed to build up a successful business, who can now afford otherwise, vow they would never do it again!

The advantages of buying an established business (assuming you have done your “due diligence” diligently, include:

  • Predictable outcomes, ability to budget with some confidence
  • Established cashflow
  • Established Customer base
  • Ability to borrow money against reliable cash flow
  • Proven processes, procedures
  • Trained staff.

Here is a scenario: This is an oversimplification, but it illustrates the point.

You want to increase your business, its profitability, and ultimately, its value. You could hire another salesman – that would cost you around $100,000 PA, and it may, or may not work. Alternately, since $100,000 would easily pay the interest on $1 Million, you could buy another business to that value, which would add another $300,000 or so directly to your bottom line, maybe more, if you have got the synergies right.

Q2. What are the disadvantages of buying a Business?

Most of the disadvantages of buying a business should be overcome in the “due diligence” process.

Of course, if you can’t afford to buy an established business, you have no alternative but to start one up, although in the long run, the hours of working for no/low income whilst establishing a reliable cash flow can still represent a significant cost.

The major disadvantage of buying over starting is that you can’t make the capital gain available to the successful start up.

 

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