Question

Encik Omar plans to buy an existing small batik business in Bachok, Kelantan but he is not sure what are the real advantages of buying existing batik business if he wants to pursue with his plan.
Provide advice on major advantages of buying an existing small batik business to Encik Omar.

Answer 1

The following points can be used to frame complete answer to this question:

Major advantages of buying an existing small batik business are :

• Since Encik Omar is planning to buy an existing business, so he will already have an idea about how the market reacts to the batik business i.e. as the product is already market tested so he will already know whether the good has enough demand or not and he can accordingly decide whether to buy the business or not.

• Since the business is already set up, so he will not have to start from scratch i.e. from finding a suitable place to set up the business, then finding appropriate suppliers, employ the employees, then buy inventory before actually opening the business for customers. He can directly start selling his good is he buys an existing business. He can also take advantage of the business relations with the existing suppliers, workers and customers.

• He will also be able to take advantage of the goodwill of the existing firm. The firm would already have earned a brand value and goodwill in the market and he can encash that goodwill.

• Since the business is already operating, it will be easier for him to obtain financing if he needs to because the existing level of operations of the business can be helpful in convincing the financing firms to offer finance. On the other hand, if he sets up a startup and asks for finance for that, then the creditors will assign higher risk to the startup as they do not have any past record of the business to rely upon. Hence they might not give the required funds or might give them at unfavourable terms and conditions.

• Since the business is already running, so it already has a customer base and most of the customers would continue to buy from the same business even if the owner of the business changes. This will be highly beneficial for Encik Omar as attracting customers towards a new startup is very difficult. It means that there would be immediate cash flows as soon as he buys the business.

• Existing employees and managers will have experience in running that business which will be highly useful for continuing the operations of the business and will also be helpful in the expansion of the business.

You can explain these points in greater detail as you feel appropriate to reach your final answer.