Discuss the advantages and disadvantages of buying a business as opposed to starting one from scratch. What two ways can one buy a business and which is preferable ? Why?
The advantages and disadvantage of buying a business as opposed to starting one from scratch include many different items. The advantages of buying a business are having the past performance as a guide, having readymade inventory, personal, and infrastructure, and an easier way of obtaining a commercial mortgage if you can show a proven track record. The disadvantages of buying a business include not knowing if the financials are accurate, there may be undisclosed problems with the product or service, and you might have a larger investment if you are paying a premium price for the existing business. The advantages of starting one from scratch are knowing from the ground up that all legal policies, procedures, and laws have been followed, you can choose your own personnel and you can choose your own products and services and brand them as yours. The disadvantages of starting your own business from scratch include a more difficult time obtaining a commercial mortgage, trying to decide on a product or service and making the necessary implementations to achieve these products and services.
When you buy a business you have their past performance and history to help you gauge future performance. You will already have in place the people you need to run the business and many of these people might be beneficial in guaranteeing you keep the same customers especially if there are important business relationships already established.
The two ways one can buy a business is to purchasing the stock in the business or to purchase the assets of the business. The disadvantage of purchasing the stock could is the taking on of additional liabilities, these liabilities could come up at a later date with no ability for retribution from the previous stock holders. When you buy the assets of a company you can chose which assets to purchase, these could include inventory, accounts receivables, the building, equipment, and furniture and fixtures. Other intangible assets you could buy include buying the name of the business, buying the contact list of customers, and buying any branding, trademarks, or patents. Buying the assets would be preferable in that your potential for liability is reduced.
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