Howard & Hardyman LLP

Should I buy an existing business?

Many entrepreneurs face a basic question. Should they build a whole new business from the ground up, or is buying an existing company the better option? There are several important benefits to purchasing an Illinois company instead of building a new one. However, buying a company is not free of pitfalls. The key to making the best decision is to know both the upside and downside to a company purchase.

Entrepreneur.com explains that generally you are exposing yourself to less risk purchasing an existing company than if you build your own business. An established company already has employees, modes of operation, a client base, and an existing cash flow that ideally is producing profits. If you make a smart buy, you are gaining a company that is already successful in the market.

Companies also contain their own intellectual property rights. By purchasing a company, you are also gaining the legal rights to use the company’s copyrights, trademarks and patents. These intellectual properties can generate lucrative profits, particularly if you find better ways to exploit them than under the previous regime.

There are some downsides to buying a business. In most instances, you will have to shell out more money to purchase an existing company than if you had to buy your own property and resources for a new outfit. Still, you are more likely to find some financial backing to help you buy a company than if you needed capital for a new business with no track record.

Also, you will have to deal with the workforce of the company you are buying. Sometimes employees have no problems with a change in ownership, although it is understandable if some workers feel nervous about a new owner coming in. Additionally, workers may also exhibit hostility towards you or any changes you wish to make, particularly if they held the prior owner in high esteem. You might have to invest time building credibility with the employees or replacing workers with new ones.

The inventory of the company might create another burden. Imagine, for instance, you open up the warehouse of the company to discover large parts of it are filled with old stock. Some of it would only go at discount prices, while other parts of it may hold so little value that you have no choice but to dispose of it. Obsolete inventories can be a problem if you do not discover them before you purchase the company.

While there are risks involved, buying an existing business does have its benefits. Ultimately, the matter resides in your hands. Keep in mind that this article, while providing information on business law topics, does not offer you any legal advice.

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