This hub “Buying an Existing Business Versus Starting a New Business” has one aim and that is to explain the various factors involved in buying an existing business or starting a new business.

1. Buying an existing business

If someone has never owned a business, buying and operating an existing business offers many advantages such as established customers and business procedures, trained employees, inventory and premises which are in place and a business which already has a name in the market.

There are many questions which the potential entrepreneur needs to ask about any business which is for sale:

• Why do I want to buy this business?

• Why does the owner want to sell?

• Does the business have a future where it is and the way it is operating?

• Will I be happy operating this business?

• Do I have the skills?

The question of price is a difficult one. Consider what you are getting for the price you are paying.

• Are you getting land and buildings?

• Are you buying the stock, furniture and appliances?

• Are you buying the name of the business and the rights to use that name forever?

• Are you paying for the present owner of the business not to set up another business nearby?

There are several ways of putting a price on a business. By comparing several similar businesses you will get a “feel” for a reasonable price. However, no matter how much you pay, that amount is your investment in the new business.

2. Starting a new business

Most people who want to be entrepreneurs think that the best approach is to start their own new business and not to buy one that already exists. This approach gives the potential owner a great deal of satisfaction. It also means taking a relatively high risk compared to buying an established business.

Starting a new business means allocating a great deal of time to planning and investigating the potential market for the products or services to be sold by the new business.

3. Becoming a franchisee

Franchising is a system where a franchiser has developed and implemented a business that he offers for replication to a franchisee.

The franchisee opens a business by using the business idea of the franchiser against a fee. In return, the franchisee gets training, the marketing concept, the brand name and the product or service. He also has the guarantee that no other franchisee from the same franchiser will have the right to do business in the same area.

All these elements are fixed in a franchising contact that is binding for both parties. Franchising lowers the risk as the product is well known in the market; on the other hand, it limits entrepreneurial decision making and shrinks the profit margin as a fee or a percentage of the turnover has to be paid.