1. Buy A Franchise - Your First Decision
Which is best for you - start a new business, buy an existing one, or buy a franchise?
Carefully consider all the issues
Your first decision in this journey
WEIGH YOUR RISK VS. RETURN
There is nothing better than to be your own boss. Small businesses are booming across America and there has not been a better time in recent history to get started on the path of entrepreneurship. It could lead to a lifestyle that you really wanted and could be financially very rewarding. As a successful entrepreneur, you can fulfill your wishes that a regular job might not allow you to do. The most important step in this direction will be the very first decision – should you start your own business, buy an existing business or buy a franchise. All the pros and cons of each are explained below to help you make your choice:
START YOUR OWN BUSINESS
This is a high risk option. Most new entrepreneurs, even those with strong skills and money, do not fully realize the complexity of starting and running a new business. Developing your product or service, managing finances, dealing with employees, managing clients, ensuring compliance with legal aspects, etc. can be overwhelming. However, there are certain situations where this may be advisable. These situations are mostly around you being very clear on what you want to do and having solid experience over multiple years in that area. For example, you are working in a certain area and are well aware of how to run that business by working for someone else. After a few years of learning all the aspects, you may feel comfortable doing it on your own. Additionally, your personal situation should be such that you have not only the initial investment required, but extra money in case things don’t go per plan initially. This is important because, even if you are really good at something, it might take time to get your business stabilized. Getting your initial clients in any business could take a bit longer than you expect.
BUY AN EXISTING BUSINESS
Buying an existing business can result into immediate income, however you need to consider several pitfalls. First, when buying a new business you really need to understand if the business is really earning what the seller is saying it is earning. Has he kept the book of accounts properly and truthfully? This is very difficult to figure out unless you verify the income with the main clients/customers. Sometimes this is not feasible. Secondly, in the business income, how much was the owner paying himself/herself. Were the expenses properly reported? The seller may report lower expenses to make his business look more attractive to a prospective buyer. Sometimes the seller may report higher expenses to lower the tax liability. You really need to understand this very carefully. Second issue is that there might be some business liabilities that you may not about. For example, the business supplied bad quality goods or services in the past. The new owner might get sued for this. Legal experts can help protect you, but that could be costly. Third, in many businesses the old clients may be more comfortable with the previous owner, someone who they might have worked with for several years. In this case, the new owner may experience the income drop after buying the business.
BUY A FRANCHISE
I am assuming that you are reading this because you are considering this option. I will start with some of the positives, and then spend some time pointing out the negatives and how you can significantly improve your chances of success. A franchisor like McDonalds, Menchies, or a business like that, has already figured out what works and what doesn’t. They are looking for entrepreneurs who will like to benefit from this model that they have already made successful and replicate it in multiple locations. In return, they will charge a fee upfront and a percentage of your sales on an ongoing basis. You do not need to spend time figuring out the idea or how to make it successful. You just have to apply the business model that they have already developed. You will have a product or service to sell, pricing of that product or service, estimated number of employees that you might need, type of location required, operations manual, etc. In return, they charge an upfront franchise fee and an ongoing fee based on your sales.
This feels like the easiest option, and it is if you really do your homework correctly. The problem is that there are over a 1,000 options to choose from and most are not good. It is hard to figure out the best option for yourself and therefore my goal.
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