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Business set up versus buying an existing business in South Africa |
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Setting up a business in South Africa – set up of a new business versus buying
When coming back to South Africa and exploring the option of running your own business - there could be two ways of starting a venture to make you profit. You can look at buying an existing business, or plan to set up your venture from the start ( a start up business).
Both routes have got incremental pro’s and con’s, and it is important to look at what the input in both instances will be.
Factors to consider include:
- When buying a business, there should already be a certain amount of clients and turn over. When setting up a new business, the business will have neither clients nor turnover, and could take quite a lot of time to start getting clients.
- When buying a business, there should be a positive cash flow when starting, however, when setting up this might take a while to be generated.
- When buying a business, the product would have already been tested and the business should have changed the product out of experience the business has gained. When starting new, this process of trial and error can take quite a while to perfect the product.
- It is easier to get training from the previous owners when buying a business, than when you start a new venture.
- An existing business has all the contracts and suppliers already in place. When setting up a new venture this could take up a lot of time.
- It is easier to plan in an existing business, since you will have historical data to use as background to your planning. Projected cash flows and income statements will be much more accurate than in a new venture.
- An existing business already has a brand and brand awareness, however this could be negative.
- By buying a business, you might be paying a much higher price for the business than setting up a new venture.
- You will be able to start “clean” when setting up a new venture, where as when buying a business there might be some skeletons lurking around and bad habits very well entrenched.
- When setting up a new venture, you will know what you are investing in, as well as what liabilities the venture will, or has entered into. Although trying to eliminate hidden problems through a due diligence, there could always be hidden liabilities in an existing business.
- You do not know the complete history of a business that you are buying, where as a new venture has no history.
In summary there is no hard and fast route as to the best approach with each having their merits.
One item that is a must though, is your commitment to the business, whether buying or commencing a new venture, either route requires a huge commitment of time and energy as well as sufficient capital.
Buying a business legal structure - Professional Assistance
The above article was contributed by the Incompass Group. Incompass provides a one stop service for returning South Africans that are considering setting up their own business. They are able to assist with Company formation, business plans, due diligence, marketing strategies and tax structures.
Incompass can be contacted here.
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