3.5 - Purchasing an Existing Business

Question 1

Benefits of Purchasing an Existing Business (7)

Answer 1

• Sales to existing customers generate instant income
• A good business history increases the likelihood of business success
• A proven track record makes it easier to obtain finance
• Stock has already been acquired and is ready for sale
• The seller may offer advice and training
• Equipment is available for immediate use
• Existing employees can provide valuable knowledge and assistance

Question 2

Costs of Purchasing an Existing Business (4)

Answer 2

• The existing image and policies of the business may be difficult to change, especially if the business has a poor reputation.
• The success of the business may have been due to the previous owner’s personality and contacts so it may be lost when the business is sold
• It may be difficult to assess the value of goodwill, with the likely hood of the new owner paying more than the goodwill is worth.
• Some employees may resent the change to the business operation

Question 3

Benefits of Setting up a New Business (4)

Answer 3

• The owner has the freedom to set up the business exactly as they wish
• The owner can determine the pace of growth and change
• There is no goodwill for which the owner has to pay
• If funds are limited it is possible to begin on a smaller scale

Question 4

Costs of Setting up a New Business (4)

Answer 4

• There is high risk and a measure of uncertainty.
• Without a previous business reputation, it may prove difficult to secure finance
• Time is needed to develop a customer base, employ staff and develop lines of credit from suppliers
• If the start-up period is slow, then profits may not be generated for some time.