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Pros and cons of buying established business
Established business is a very complicated asset, but still can be considered as tradable product with definite properties. And for every product there is market with its sellers and buyers. For example, http://business-asset.com - the largest in Canada online marketplace of businesses for sale.
First of all the main minus of purchase of established business is a complexity. It can be a challenge, because there are a lot of hidden dangers. It is not a secret that some offers are pure fraud. And it is highly recommended to hire professionals to avoid this risk.
On the other hand there are a lot of extremely profitable and stable businesses on sale. Owners are forced to sell them due to significant reasons (e.g. age, health problems and so on).
Anyway you should be ready that this is not black & white world. Every business has some faults and you should always do proper due diligence of an asset. At least your findings can help you to get some discounts for a selling price.
Secondly, generally a price of ongoing business is larger than a simple sum of its asset costs. For many reasons selling price includes a premium.
Initially you definitely invest more than starting new business from scratch. But if you also properly calculate time and efforts to develop business to certain level, this premium will disappear.
If you are new in a business world you should understand that a pure idea of business is just 5% of success. The rest is no end of efforts to make your assets and personnel work as a single mechanism, generating a stable profit.
And statistic makes you afraid. Only 1 out of 5 new businesses will survive and stay profitable within 5 years period. So if you start our own business you most probably will come to a sad end.
On the other hand, based on same statistics buying of established business is less risky. 4 out of 5 purchased running businesses will continue their operations. If you do right due diligence you will additionally mitigate this risk.
Purchase of turnkey business saves your time. In average it takes 3-4 year of a hard work to build a profitable enterprise. If you buy, you get money-making asset immediately.
In some businesses location (or personnel) are key assets. You simply can’t start such business, because there are no good locations available. And suitable real estate is not available, because businesses in such locations are profitable. The only way to enter the market is to buy ongoing business.
Buying business is complicated process and quite risky. But this risk much lower than starting business from zero. Plus you heavily save your time, health and efforts.
All above-mentioned risks can be significantly decreased by hiring professional appraisals and consultants.
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