AVENUES OF ACQUIRING A BUSINESS

 

1.       Buying into an existing business:

Buying into an existing business has certain advantages:

·         Groundwork has already been done

·         Easier to get finance assistance for e.g. a business loan or partner

·         Established product, market, client base, reputation, income

·         Existing employees with experience

·         No additional training is needed – only updating and maintaining

·         Marketing plan has been established

·         Immediate cash flow as there are already established customers.

·          Distribution, supply links and staff are already established.

·         The market is not being further divided by an extra business.

·          Existing assets form part of the business and do not need to be bought.

 

Disadvantages of buying into a business:

·         Risk of over-estimation of turnover or profit by seller.

·         Success of a business often rests on the reputation of the previous owner or a key staff member (like a chef).

·         Seller may attempt to overstate the return the new owner can expect to make on the investment.

Contractual obligations and legalities:

·         The new owner may have to take over existing contracts with employees and suppliers and may have to enter into some new agreements.

·         The new owner may insist on a restraint of trade clause in the deed of sale to prevent the seller from starting a similar business in the same geographical area.

·         When the business acquired is a legal entity (for instance, a CC or private company) most legalities will just continue

 

2.       Starting own business venture:

Starting own business venture has the following advantages

·         Own boss

·         Can make lots of money

·         Job security

·         Interact directly with customers

·         It’s your own name/brand

·         Job satisfaction

·         Cheaper as there is no goodwill to pay for.

·         Do not take over the problems of an existing business.

·         Freedom to introduce new equipment, techniques, procedures and staff.

·         Greater impact on the character of the business.

·         If capital is limited the business can start on a smaller scale

 

Starting own business venture has the following disadvantages:

·         Nothing to measure the new business against to determine whether the business will be successful.

·         Competition and demand for the product or service are not tested.

·         No established systems and procedures in place.

·         An extra business sub-divides the market even further.

·         Initial costs may limit cash flow

Contractual obligations:

·         A sole trader has no contractual obligations.

·         If two or more persons form a partnership a formal agreement (partnership agreement) is recommended.

·         Normal legal requirements related to running a business also apply e.g. registration for tax purposes.

·         The new business will have to enter into contracts with employees, suppliers, banks, landlords and customers if credit is supplied

Last Edited by: Ms Kheswa