Small businesses number 636,842 or 99.5% of Tennessee’s total companies, according to the United States Small Business Administration (SBA) Office of Advocacy’s August 2021 report. If you have an entrepreneurial inclination, one option is to buy an existing business rather than hanging up your own shingle. If this sounds appealing to you, you may wonder, What are the pros and cons of buying an existing business in TN?
At Batson Nolan PLC, we provide professional and personalized legal services to businesses and employers throughout Tennessee. During our firm’s 160 years in service, we have learned tricks of the trade to help entrepreneurs succeed.
Buying an Existing Business in TN
What are the pros and cons of buying an existing business in TN? To answer this question, we start by discussing the advantages of buying an already established business. There are a host of benefits to taking ownership of an existing business, including:
- Higher chance of success,
- Faster potential rate of return on investment,
- You avoid the risky and expensive startup costs, and
- You can capitalize on an existing system.
These are just some of the many advantages of purchasing someone else’s business. Our team discusses each of these in turn next.
You Have a Higher Chance of Success
The Bureau of Labor Statistics reports that only about 79% of startups make it beyond their first year after opening, a figure which has remained somewhat constant from March 1995 through to March 2022. Within five years after onset, only about half of the startups are still around after opening.
You can avoid becoming an abysmal statistic by buying an existing business rather than starting a new one. If you have done the proper research, the company you choose to buy has a much higher chance of surviving than if you were to form a new business.
There Are Quicker (and More Dependable) Returns on Investment
Many startups have a high chance of failing early on, and even those that survive may take a while before they turn a profit. With an existing business, you can bypass the growing pains and financial stress of owning a new company. If the business you are buying is profitable, you can expect to see a more significant and immediate ROI.
You Avoid the Costly and Risky Startup Expenses
Starting a new business is expensive. From filing fees to production costs and everything in between, the itemized expenses can add up quickly. Plus, there is no guarantee that you will ever see that money again because you are starting something original.
However, when you take on an established venture, you can avoid costly and risky startup expenses. Buying an established business gives you more assurance about whether and when you will see your money again.
You Can Leverage the Power of an Existing System
One of the biggest benefits of purchasing an established firm is capitalizing on existing systems. With startups, everything is new, and with this newness comes risks. Seasoned companies already have a steady and reliable customer base, trained staff, established procedures, and other components. This means that you can spend your time and resources honing the business’s vision and encouraging growth rather than building from the ground up.
What Are the Disadvantages of Buying an Existing Company in TN?
No discussion on this topic would be complete without addressing the disadvantages of buying an existing company.
Poor Brand Recognition or Reputation
If part of the reason the current owners are selling the business is poor brand reputation, this is something you inherit when you take the reins. It can take a lot of creativity, grit, and funds to reimagine a company’s brand and save its reputation.
Unprofitable Processes
One of the benefits of buying a business may be that there are processes in place already, but this can also be a drawback. As you take the reins and reassess the company’s operations, it may be that these procedures need a tune-up. It can take time to rewrite the operations manual and retrain the staff, and you may encounter resistance among current team members.
High Up-Front Cost
Undoubtedly, the cost of buying an existing business will usually be relatively high up-front. You may have a higher chance of seeing that money in the future, but you and the business need to continue being profitable to do so.
Batson Nolan: Our Lawyers Can Help
If you are interested in buying a business in Tennessee, contact our office to discover how we can help support you. We can be reached by telephone at 931-650-5484 or by submitting an online contact form. Schedule a consultation with a lawyer at our office today.
Our Business and Corporate Law Group consists of lawyers who have a deep understanding of business law, having helped hundreds of clients throughout the years.