There are three possible paths to business ownership; each has its advantages and its disadvantages.  Choosing a business requires a lot of consideration.  Here are the pros and cons of three possible paths to success:

Starting your own Business

Starting and building your own business has several advantages, including being your own boss.  You begin fresh and you have total control on how the business will be managed and you are free from obligations to franchisors.  You choose the location and determine the products and services you will offer. 

The downside of starting your own business is the work involved in the start-up process, including business licenses and permits, establishing credit lines with suppliers and generating customers.  New businesses often find it difficult to secure financing while they take longer to show profits. 

If you plan to start your own business, you will need to be prepared to dedicate a lot of time and energy to get established.  This could mean working long days, with no days off, for a stretch of time while you focus on building your business.

Purchasing a Franchise

When you purchase a franchise you (the franchisee) enjoy the benefits of a start-up and the benefits of buying an existing business.  A franchise is the right to sell a product or service (for a franchisor); under a franchise agreement, you are expected to be successful.

The financial risk in owning a franchise is reduced since they already have an established product or service and a proven business model.  For example, McDonalds is a very well-known name and they attract a lot of customers.  With a franchise, everything is already in place including the interior layout, displays, business techniques, policies and procedures and more. 

Many franchisors offer assistance in marketing and management support.  Some even assist in securing the financing to franchisees, while some are able to get their own.  Lenders and banks are more willing to extend credit to franchisees as they face less risk than those who start their own business.

There are disadvantages one could face when buying a franchise, including the high franchise fees required upfront.  These fees can range from a couple thousand to hundreds of thousands, depending on the franchise.  Some do not offer the support and assistance to help new franchisees get started.

Be careful purchasing a franchise; research the franchise, talk to other franchisees in the business and check to see if they have a good support team for new franchisees.  See how successful others are and if they are happy.

Buying an Existing Business

Buying an existing business reduces the time and energy expended in establishing a new business.  The company has already been formed, employees are in place, relationships with vendors established and they have regular customers.  Provided the business you buy has been profitable and has a good track record, establishing financing to build or expand the business will be less challenging. 

Beware of the common pitfalls of buying a business.  The required investment could be quite high compared to starting a business.   Why was the business being sold?  It could be that they are not as profitable today; their product or service could be losing popularity or becoming obsolete.  Though they may show a lot in receivables, many could be uncollectable. 

Get to know a business before you purchase it; try to watch their everyday operations, talk to employees, vendors, and anyone who has a business relationship.  Ask to see financials for the current year and for at least the last few years.

Bill Bartmann knows how business can be tough.  Bill Bartmann’s Billionaire Business Systems has helped thousands of entrepreneurs reach their goals by showing them how to strengthen their business even during times of economic uncertainty.