Costs and Benefits of an Existing Business and A New Business

Question 1

Purchasing an existing business

Answer 1

It is already operated and everything associated with it is also included in the purchase such as the employees, goodwill and reputation.

Question 2

What should be considered when purchasing an existing business?

Answer 2

• Investigate why the business was on sale, if the business had been struggling then it’s not a good purchase
• Examine the detailed business account for the last previous three years to see its financial health

Question 3

Advantages of an existing business

Answer 3

• Trained staff
• Instant income from pre existing customers
• Proven tract record makes it easy to obtain finance

Question 4

Disadvantages of an existing business

Answer 4

• May inherit bad reputation
• Success may be tied to previous owners contact and may be lost
• Difficult to see the value of good will

Question 5

Purchasing a new business

Answer 5

Owners may start a new business because:
- They noticed a gap in the market
- Developed a new product or service

Question 6

Advantages of a new business

Answer 6

• Owner can determine pace of change and growth
• No good will to pay
• Full power over decision making

Question 7

Disadvantages of a New Business

Answer 7

• High risk and uncertainty
• May be difficult to get finance without reputation
• Takes time to develop customer base and profit