Now that we’ve learned the pros of buying a business, let’s analyze some of cons and disadvantages:

1. Costly

You must understand here while there can be a long possible list of reasons a business is put on sale, the bottom line is always to make as much money as possible upon exiting.

The price tag does not only take account the startup investment but will also consider potential market, inflation rate, profit projection and so on. This can translate to an exuberant amount of money.

A prudent entrepreneur, on the other hand can start a new business with a small amount, and build up his business while investing more and more money to grow his business.

2. So what it’s (the brand name)

Sometimes, the company we’re buying has a long history stretching back some 50 years ago and perhaps is in fact a household name and brand. For example, concurrently franchise outlet owners would decide to sell off his franchise right to venture into other business, relocating or simply retiring (meaning he’s gotten rich enough). So, if you’re buying a right for 7-Eleven, what’s the big deal? Yes, true, you will get a lot of money soon, but there is a little sense of belonging as far as the brand is concerned. You didn’t build it.

3. You buy a sinking ship

No voyage can be worse than coming onboard a sinking ship, no matter how big and beautiful the ship can be. It can be as big as Titanic but we all know the ending of the story. Sheer sadness. While we have taken the extra precaution in doing all sort of financial analysis, sometimes there are matters that we overlooked. A leak in the system, if goes uncovered, will slowly yet surely sink the business. When we sense something is wrong, we try to find the leak. When we find it, it’s probably too late to save the day.

4. The intangible and unseen factors

Most people do little analysis on this aspect, which can yield a catastrophic results. Sometimes the fault lies within the previous owner – e.g. bad relationship with vendors, spat with the premise owner, marriage scandals, chased by loan sharks and so on. Not far away, there are eyes watching with personal vendetta in mind without realizing the business has exchanged hands. That’s why it is equally important to analyze various other elements in the business. You may even perhaps want to hire private investigators to see if there is any wrong with the business we’re buying.

5. Short lifecycle of product/services

Apparently, there are business out there relying much on buzz and hype. Such a good example is the Mexican bun’s Rotiboy story (read article: Rotiboy Story – The Rise and Fall). Once discovered a few years back, people were lining up to buy the buns and at the height of its fame, one outlet was selling 20,000 pieces of buns per day. Sensing opportunity, new entrepreneurs jumped bandwagon, opening the likes of Pappa Roti, Roti Mama, Roti Mum, Mr Bun and so on. When the buzz was over, the business shrank to the size of a peanut.

Buying a franchise? Before you do that, look at the following questions, answer them, and evaluate if you’re ready to jump ship.

1. How much is the franchise fee? Do you have a complete range of the fees they offer? What is your affordable range? $10,000? $50,000? $1 million?

2. For a few different sets of fees, have you looked at the real franchise outlet operating? Is the outlet size and operation as what you have in mind? Is it manageable for you?

3. What exactly types of training will be offered by the franchisor? Does the training provide adequate skills and knowledge to you running the franchise? After you hire staff, do you have, in turn train them, or can you get assistance from the franchisor to help out?

4. What about training fees; is it included in the franchise investment you will be committing? Or are you going to spend more money for the purpose?

5. Will you be given any exclusive territorial right by your franchisor (which means no franchisee will be operating within certain radius)? The last thing you want to happen when you operate a 7-Eleven outlet is seeing a new outlet opening just across the road, 10 meters away from your shop.

6. Do you have in mind what will happen if one of you (franchisee or franchisor) terminates the agreement? What will be the repercussion in terms of financial and legal? What obligation you will need to fulfill on the premise, which include equipment leasing, rental, asset purchasing and so on?

7. Who will decide the site or location of the operating outlet? Will you be asked to undertake a research, negotiate a deal and submit your site to franchisor? Or will the franchisor lend you a hand on this? Will the franchisor actually do their work and determine which location you will be operating?

8. You’d probably think that buying a franchise means you won’t work as hard as starting a new business. That’s an urban legend. Are you ready to dismiss this myth? Are you ready to put in long hours and not go for holiday for the next 1 year.

9. How you will be financing your franchise business? Cash? Loan? If it is loan, from which institution? As most financial institutions do not provide 100% financing, have you set aside between 10% to 20% of your own money?

10. What type of role your franchisor will play during your submitting application for financial loan? Will they help you out? Or they will only see you once your business loan is approved?

Starting a business is no easy journey. It comes with a lot of pain, anguish, disappointment and even anger.

That’s why when someone suggests to you the idea of buying a business instead, you should not scoff at the idea immediately. There is truth when they say buying a business idea is like buying a success, provided you do it right.

If you know what you’re doing and do enough homework, you’re set for to embark on a very successful business venture.

Here are 5 reasons why should consider buying a business:

1. Ready market

Establish businesses already have their own market and customer base. If you’re lucky, you may just get hold of one of the most popular brands in the city. The first thing you need to do once you takeover the business is to locate and identify your market, sustain it, and grow it beyond the current boundaries. You might as well take a local business and break into the international market.

2. Reduce financial risk

If you do a thorough analysis and find out that the business can generate a positive cashflow the day you takeover the business, then you’re up for a good time ahead. Just make sure that the business you are buying is not embroiled in deepening financial crisis. If it is necessary, send a professional team to evaluate how the business is run, and draw a projection of how it will do financially in the next 3 months.

3. Skip paperwork hassle

Many a time, the eagerness to start and operate a business was cut short due to the paperwork associated with it. Registering your company, applying for council permit, licensing and other administrative and paperwork tasks are both time and energy consuming. In a way, buying a business is like leaping into a car rolling on a fourth gear. Your job is to shift it into fifth gear. No need warming up of engine.

4. Easier path for financing

It is estimated that out of those start up companies applying for financial assistance, as much as 90% of them are rejected. A business which is run profitably can cut the frustration of getting financial assistance, so you can grow it faster than anyone can imagine. Good record keeping, coupled with prudent management and potential growth of the business will make it easier for the banks and financial institutions in lending loans.

5. Faster break even period

Again, buying the right business is like jumping into a stream of cash. While you may part with a significant amount of money, always consider the cashflow the business will bring on daily, weekly or monthly basis. If a new start up business may take years to break even, you newly acquired business may take much shorter time to start generating profits.

The cons? Later.