Advantages and Disadvantages of Purchasing a Business

ADVANTAGES OF PURCHASING A BUSINESS

Advantages of purchasing a small or medium business can include:

  • An existing customer base and existing contracts
  • A good business history increases the likelihood of success and profitability
  • An immediate income is generate as the business remains operational
  • Existing suppliers and existing credit terms
  • Existing staff, management and systems
  • Existing plant, equipment, stock and materials
  • Knowledge of the business from the current owner
  • Established premises with phone numbers, website and email addresses (on the first day you take over, the phone will ring, orders will come in as per normal)
  • Goodwill associated with the name and location of the business
  • Financiers will be more readily to lend to an existing business with a trading history (ie. they have something to lend on)

DISADVANTAGES OF PURCHASING A BUSINESS

Disadvantages of purchasing a small or medium business can include:

  • Customers may associate the goodwill of the business to the previous owner
  • Staffing issues:
    • Some staff may leave when a new owner takes over
    • Some staff may be unsuitable for the job they are doing
    • Some staff may resent the change in ownership
    • You may inherit staff entitlements, such as impending long-service leave payments
  • Plant & equipment may be obsolete or faulty
  • The business may have a poor image which may be difficult to change
  • The cost of acquiring the business and goodwill may be overpriced
  • The outgoing owner may have been the key to the business success. They may have had significant relationships with key suppliers / customers which may break on a new owner entering the business

A successful due diligence program should be able to overcome or at least make you aware of the above disadvantages. Any unresolvable disadvantages should be built into the end purchase price. Please click here to visit “Checklists and Hints on Buying a Business”

Contact

Suite 13, 241 Blackburn Road
Mount Waverley, Victoria, Australia

Phone: +61 3 9802 2533
Fax: +61 3 9802 0590
Email: mail@rogersonkenny.com.au
Postal Address: PO Box 323, Mount Waverley, Victoria, Australia, 3149
ABN: 29 545 604 022