Advantages and disadvantages of buying a business as opposed to starting one from scratch.

The pros and cons of buying a business as opposed to starting one from the scratch depends very much on the state of the business being purchased. At the back of our minds should be the fact that, depending on the condition of the business, every advantage could actually constitute a disadvantage.
We will touch on some of the most important points.

Advantages
The business is already running, therefore the lengthy process of researching the business and other startup activities and costs are avoided. Hopefully too there are already in place a business plan, marketing plan, suppliers, customers, equipment, inventory, receivables, systems, operation manuals and experienced staff. The new owner can then focus on building and expanding the business.

It should ordinarily be easier to obtain financing as the business will already have a proven record to show feasibility of the business idea and actual financial records over a period of time as opposed to projections. These are prime requirements of certain financiers for advancing credit

A market for the product or service will also have already been demonstrated. The venture would have established clients and thus have an existing, steady stream of income which the new owner can capitalize and expand upon. A new business’ first positive cash flow, in contrast, will usually be expected on an uncertain future date.

Disadvantages
The new buyer may be oblivious of the problems of the business as the previous owner might not have made full disclosure in order to boost thesales price. One such problem being that the business may have poor receivables improperly valued at purchase that turns out to be non-collectible. This fact can be mitigated by proper due diligence prior to purchase.

Inheriting a poor reputation, systems, products or services could pose problems in several ways. The new owner has to correct his in order to make the business profitable. Of the four a poor reputation is probably the most difficult to correct.
The business may also require a considerable investment of capital over and above the purchase price which may have already been inflated.
Where the success of the business depended very much on the input and skills of the former owner rather than its business systems, that will affect performance negatively. Particularly in service businesses, clients may leave and market share lost.

The new owner may need to honor or renegotiate any outstanding contracts of the previous owner, which may not have been favorable to the business.

Existing staff may not like the new boss, especially if employment contracts will be renegotiated, and a new direction charted for the business. This may disrupt industrial relations and productivity.