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What do I need to consider when setting up in business or buying a business

Guest post by: Russell Bowyer

Article Overview: Have you ever considered buying a business or are you in the process of buying a business? Or perhaps you are considering or have thought about setting up your own business from scratch. If the answer to any of these questions is yes then you will recognise how difficult and daunting this process might be and this article is directed at those people in an attempt to help with the decisions. If you buy an existing business you know for a fact that a market exists for the product or service that it sells… When you buy a business most of the hard work has been done for you… My final consideration in this article is in terms of assets at a discount…

What do I need to consider when setting up in business or buying a business

Have you ever considered buying a business or are you in the process of buying a business? Or perhaps you are considering or have thought about setting up your own business from scratch. If the answer to any of these questions is yes then you will recognise how difficult and daunting this process might be and this article is directed at those people in an attempt to help with the decisions.

So the first question you need to answer is: Do I set up a new business from scratch or do I buy an existing business? There are pros and cons for both and you will need to weigh these up when deciding upon which route to embark upon. If for example you have invented the next best product that does not presently exist on the market, then clearly, if you consider this to be a product that does indeed have a market, then setting up from scratch is the route to take.

Having said that, if you are not the inventor of the next TV or telephone etc. then you need to weigh up whether it will be easier for you to buy a business or start one in a field that you already know. To help you consider the answer to this question it is important to consider the following points;

If you buy an existing business you know for a fact that a market exists for the product or service that it sells…

You might be saying, however, that the new business I had intended to set up from scratch has an existing market because there are other companies already selling the product or service.

That might be true, however, you must recognise that it takes time and money to gain market share and when you start from scratch you are starting from zero. Whereas, if you buy an already established business, you are buying both customers and an income stream so most of the hard work has been done for you. That is not to say however, that the business you are buying is in a shrinking market or in a market that is badly affected by a recession.

So you need to consider the economic cycle you are in when you buy a business, because you might not want to buy a company that sells televisions and other luxuries in the middle of a recession, for example.

When you buy a business most of the hard work has been done for you…

There is no doubt that the hardest part of any business is the early days and getting it set up, getting your first clients and getting your initial cash flow. Setting up from scratch requires you to find premises; employing staff; setting up computer systems; deciding on the marketing; getting to be known in the market place; finding suppliers; getting accounts with suppliers; etc. all of which takes time and can in some cases mean a steep learning curve

Other areas of setting up a new business that you might require is funding and sorting out banks and finance; accountants and other financial advisers; setting up systems and processes within the business; business insurance; telephone systems; etc. whereas most of these will have already been sorted out by the present owner of the business you are considering to buy (not always correctly mind you!)

When you buy an existing business, most of the hard work has already been done for you and whilst you will probably want to appoint your own accountants and financial advisers, most of the other points will have been addressed by the previous owners. Once you have your feet under the table, as it were, you will very likely want to change the way the business is run, especially on the marketing front, however, it is probably much easier to change an existing set up than to start from scratch, because the existing business will already have clients, but more importantly have cash flow.

This existing client base is something that you can go to work on and to build upon and it is important to recognise the value of a client database. Most businesses forget to market to their existing client base so this will probably be your easiest route to growth, by marketing to the businesses existing clients. It costs much more to gain new customers than to sell to an existing one! Which is point missed by most business owners.

If you are swaying towards buying an existing business then it would be better to look to one where the marketing is being done very well right now. This way you are buying "Potential" in the business and can make "Easy" profits and faster gains, let me explain:

When I mention the word marketing - I mean this in the widest possible sense of the word. So for example, does the business make full use of its existing customer base for other products or services that it sells or could sell? Are the premises of the business presentable and the employees welcoming and well dressed? What forms of advertising is the business using and are these being optimised?

There are many more questions of this type you could ask, which are all linked to the marketing of a business. There are some businesses that trade and survive despite themselves and the way in which they are run. You must have been to buy something from a company in the past and received a shoddy customer service! Did you ask the question; how on earth does this business survive?

The truth is that if this is a business you are considering to buy, they are surviving, they sometimes do and these types of businesses come on the market for sale all of the time. So I commend you to buying this type of business and with a little bit of tweaking here and there you will likely turn a loss or a small profit into a good profit in no time. What's more you should be able to pick up a company like this for a cheap price because of the low profits and of how it is run. A more profitable business is worth more and will be easier to sell again in the future.

My final consideration in this article is in terms of assets at a discount…

If you were to set up a business from scratch, it is likely that you will need to purchase the assets to run the company, at full retail price! For example, all businesses will have computers, telephone systems, office desks and chairs, together with the specific assets needed to run the type of business you might be looking to set up. However, when you purchase an already existing company you will get the assets thrown in for "FREE" because the business cannot be run without them. Admittedly, some of these assets might need to be replaced, but on the whole they work and will come within the value of the business you are buying.

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Article Tags: assets, buying a business, setting up your own business



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