buying a business

Buying a Business 101: Everything You Need to Know

Ezra Cabrera | June 11, 2024


    Thinking about taking the next step and owning your own business?

    Buying an existing business can be a great way to gain a head start and avoid the initial challenges of starting from scratch.

    While starting from scratch is a popular path, buying an existing business can offer a unique set of advantages. It can be a compelling alternative as it usually offers a ready-made customer base, established operations, and a successful track record.

    This guide will walk you through the key steps and considerations involved in buying a business, providing a clear and concise overview of what you need to know.

    What Does It Mean to Buy an Existing Business?

    Buying an existing business involves taking over full ownership and control of a functioning business from its current owner. This includes acquiring:

    • Tangible business assets, such as physical property, equipment, inventory, and other tangible resources used in the business operations.

    • Intangible assets like the company’s established brand, customer base, intellectual property (like patents or trademarks), and any established processes or systems.

    • Liabilities or the financial obligations of the business, such as outstanding loans, accounts payable, other business financials, and any legal claims.

    • Ongoing operations, which means you'll be responsible for managing the day-to-day activities of the business, including employee relations, marketing, sales, and customer service.

    In simpler terms, you're essentially purchasing a ready-made business, complete with its established infrastructure, customer base, and ongoing operations. This can be a great way to gain a head start and avoid the initial challenges of starting a business from scratch.

    Buying an Existing Business Vs. Buying a Franchise

    While buying an existing business means purchasing an established, independent company, buying a franchise means you purchase the rights to operate a branch of an established brand.

    Franchises come with a recognized name, an established business model, and support from the franchisor. This often includes training, marketing, and ongoing assistance. Franchising offers lower risk compared to starting from scratch, but it comes with certain restrictions. Franchisees must follow the franchisor’s guidelines and operational standards, which limits how much freedom they have in running the business.

    Variable Buying an Existing Business Buying a Franchise
    ControlYou gain complete control over the business, including its operations, marketing, and strategic direction. This allows for greater flexibility and customization, but also requires more independent decision-making.You operate franchisor's established system and brand guidelines. This limits your control over certain aspects, but provides support and proven methods for success.
    SupportYou are largely on your own to navigate challenges and implement changes. However, you may be able to take advantage of existing relationships with suppliers and vendors.The franchisor typically provides ongoing support, training, and marketing resources. This can be invaluable for new entrepeneurs but comes with ongoing fees and royalties.
    Brand RecognitionYou inherit the existing brand reputation, which might be positive or require improvement depending on the business's history.You benefit from the established brand recognition and reputation of the franchise, potentially attracting more customers.
    InvestmentThe initial investment can vary significantly depending on the size and profitability of the business.Franchise fees and royalties add to the initial investment and ongoing costs.

    Pros and Cons of Buying a Business

    It's crucial to weigh the potential benefits against the inherent challenges before deciding.

    Let's explore both sides of the coin to help you determine if buying an existing business aligns with your goals and risk tolerance.


    • Faster Start-Up

      You inherit a ready-made business with established operations, a customer base, and brand recognition. This allows you to start generating revenue and profit sooner than starting from scratch.

    • Proven Track Record

      Existing businesses have a history of performance, providing valuable insights into their viability and potential for growth. This can make it easier to secure financing and assess the risk involved.

    • Established Infrastructure

      You inherit existing systems, processes, and equipment, saving time and resources on setting up the business from scratch.

    • Immediate Cash Flow

      If the business is already profitable, you'll start generating income immediately, providing financial stability and a foundation for growth.

    • Experienced Team

      You may inherit a team of experienced employees with valuable knowledge and skills, reducing the need for extensive recruitment and training.


    • Higher Initial Investment

      Buying an established business often requires a significant upfront investment, including the purchase price, potential renovations, and working capital.

    • Hidden Issues

      Hidden problems or liabilities that weren't disclosed during the due diligence process might lead to unexpected challenges and costs.

    • Integrating the Business

      Integrating the existing business into your operations and management style can be time-consuming and require careful planning.

    • Limited Control

      You inherit the business's existing company culture, processes, and brand identity, which may not perfectly align with your vision and goals.

    • Dependence on the Previous Owner

      Key employees or customers might be loyal to the previous business owner, potentially impacting the business after the acquisition.

    How to Buy a Business

    Taking over a business requires careful planning, financial resources, and a solid understanding of the company and its industry. Here are the steps to buying a business:

    Before taking over an existing business, it's crucial to clearly define your goals and interests. This helps you identify suitable opportunities and assess whether you have the necessary skills and resources to succeed.

    Defining your goals and interests gives you a clearer understanding of your readiness to take over a business and identifies areas where you may need additional support or education. This self-assessment is a crucial step in ensuring that the business you choose is a good fit for your skills, interests, and resources.

    Here are some key questions to ask when buying a business:

    How much time do you have to run this business? Consider your availability and how much time you can realistically dedicate to managing and growing the business.

    What is your expertise in the field? Evaluate your knowledge and experience in the industry. This will help you understand the challenges and opportunities you might face.

    What is your expertise in business? Assess your business skills and experience. Are you familiar with running a business, managing finances, and leading a team?

    How will you fund the investment? Determine your financial situation and how you plan to finance your purchase. Will you use personal savings, secure a business loan, or seek out investors?

    Conclusion: Is It a Good Idea to Buy an Existing Business?

    Buying an existing business can be a smart move for many entrepreneurs. It offers the advantage of starting with an established customer base, proven revenue, and operational systems already in place, which can reduce the risks and challenges of starting a new business from scratch.

    However, be sure to conduct thorough due diligence to ensure the business is financially healthy and aligns with your goals. Carefully evaluate the business's value, secure the necessary financing, and negotiate favorable terms.

    Whether buying an existing business is a good idea depends on your personal goals, expertise, and the specific opportunities available. With careful planning and execution, purchasing an established business can be a rewarding path to entrepreneurship.

    About the Author

    Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.