After another successful Saturday Surgery in advising people on starting up in business, a reminder that looking at starting a business is not always straight forward. There are a couple of routes which typically can be explored, each of which have their own pros and cons:
- Taking an idea of your own and developing this into a business
Pros
- Clear vision of what the business is.
- Ability to set up systems from scratch.
- Often a unique business and therefore attractive to customers/funders.
Cons
- New business harder to establish supplier relationship/credit lines.
- New business harder to fund, particularly if new area of expertise for principals.
- Generally, pre-trading expenses/marketing spend is high and therefore needs adequately funding.
- Difficult to compete with established businesses on Google, social media etc.
- Purchasing an existing business either on a share or asset basis
Share basis
Pros
- Acquiring an established business means maintaining customer/supplier relationships.
- Ability to market an existing business via a relaunch brings opportunity for new/existing customer engagement.
- Trading/systems already in place to utilise/develop.
Cons
- Acquiring an existing business means taking on previous reputation which can have some negative connotations.
- Potential of previous issues to come to light post purchase (although a strong Share Purchase Agreement can minimise/eradicate this).
- Acquiring an existing workforce can have its own challenges.
Asset basis
Pros
- Acquiring goodwill/trading assets without taking on liabilities/historical issues allows a fresh start up opportunity but with an established customer list/trading setup.
- Purchase of trading assets easier to fund.
- Costs of due diligence will be lower.
Cons
- Valuation of goodwill nearly always an arbitrary amount and sometimes doesn’t deliver the quality of customers expected.
- As a new company will need to be formed you may have to renegotiate credit terms with suppliers.
Here at 360 we have the resources to assist start-ups and companies looking at acquisitions/disposals in either a funding or sale/purchase capacity. Take a look at our Corporate Finance, Business for Sale and Wanted pages for some of the services and opportunities available or email sean@360accountants.co.uk for further assistance.
