Few people wouldn’t want to have their own business. However, starting from scratch is always challenging. It is much simpler to acquire an existing enterprise that has a stable customer base and is generating profit.
But who would want to part with a promising business? Such situations are not uncommon. Most often, owners sell their business or a part of it for various reasons. For instance, the founders may have fallen out and no longer wish to work together. Selling a part of the business can also be the only way to fund expansion. In such cases, the proceeds from the sale are reinvested directly into the business, which allows for increased profits and moving to another level over time.
Additionally, an owner may plan to leave the country, forcing them to liquidate their business.
This method of investment has its advantages and disadvantages.
To avoid mistakes, it is advisable to heed the recommendations of entrepreneur and founder of "RESURS," Sergey Tereshkin. You can familiarize yourself with his work results on his website www.org-market.ru, where a substantial amount of relevant information is provided.
The businessman is also willing to share his thoughts on the advantages and disadvantages of acquiring an existing business.
Advantages
The advantages of investing in an already operational business include:
- No startup period. The investor avoids the phase when a business is not generating income or is searching for a profitable direction. In this case, all stages are already established.
- Ready-made product. The company offers specific goods or services. The products may be produced in-house or purchased ready-made.
- Clients. An existing business is recognized in the market. It has already established a reputation and customer base, eliminating the need for significant advertising and market promotion investments.
- Suppliers. Besides clients, the enterprise has a database of reliable suppliers who offer the best collaboration terms.
- Personnel. The company employs all necessary staff members. In most cases, this is a cohesive team, with each member having specific duties and areas of responsibility.
- Business idea. The enterprise has meticulously worked out all operational stages. The investor does not need to devise revenue strategies or a business plan.
- Legal documentation. The firm is already officially registered and possesses all necessary documents, permits, licenses, and other papers required for its activities.
- Office space. The company has its own or leased premises where the main activities take place, documents are processed, business meetings are held, etc.
- History. The enterprise has a tax, financial, and credit history. Such a company is more readily granted products on credit terms and financing, and it does not halt operations due to a lack of funds.
With the purchase of a business, all primary and costly phases are behind. The owner only needs to implement changes and improvements to increase profitability and reduce expenses.
Disadvantages
Despite the numerous benefits, acquiring an existing business also carries certain drawbacks:
- Team morale. As the saying goes: "a new broom sweeps clean." Therefore, employees usually react negatively to changes in ownership or management. This inevitably affects the company's operations.
- Outdated equipment. An enterprise that has been operational for a long time may possess outdated equipment that does not meet modern requirements and standards. This equipment may have long been morally obsolete, negatively impacting the final product and its quality.
- Terms of collaboration. Often, an enterprise works with suppliers not because they offer the best terms, but simply due to an unwillingness to search for new partners and reassure them of their reliability. Upon acquiring the business, finding new partners for enhanced efficiency will incur temporary and financial costs.
- Legal re-registration. A business cannot be legally bought outright. An investor can acquire corporate rights to a certain part of the enterprise. The re-registration takes place at a notary office and the relevant authorities.
- Existing debts. The firm may harbor significant debts not reflected in its financial statements. Identifying these debts may require an audit, incurring additional financial costs.
- Poor reputation. The company may have a tarnished reputation with numerous negative reviews from real clients. Rectifying the situation can be quite challenging. Restoring goodwill requires time and effort, and specialized firms offer "reputation management" services for this purpose.
- Personnel issues. Companies may employ individuals who are related to or otherwise connected with the management. Such personnel may lack the necessary qualifications.
- Product offerings. The products or services offered by the company may not be in demand. This could stem from low staff qualifications, outdated equipment, and other factors.
The market may simply be oversaturated. A large number of competitors directly impacts profitability.
Before becoming the rightful owner of the enterprise or a specific part of it, a thorough evaluation is essential. It is important to delve into financial matters, internal relationships within the team, etc.
When purchasing a specific part, it is necessary to obtain consent from other founders. Otherwise, the transaction may be deemed invalid, and the court may annul it.
Sergey Tereshkin particularly emphasizes the importance of the business's price. It must be reasonable, necessitating market analysis. All expenses and the profit size should be assessed. The optimal price should not exceed five years of income. A rapid return on investment may raise suspicions.
