Pros and Cons of Starting a Business or Buying a Business

There are numerous ways to become an entrepreneur in today’s information age. For example, there are countless businesses that can be started in industries that did not even exist a decade or two ago. In fact, there are so many options, finding the right business is often one of the biggest challenges. When it comes to getting started, the question often arises whether to buy into an already established business, or start one from scratch. Business Intermediary

There are advantages and disadvantages to whichever option you choose. Here is a closer look at the pros and cons of each:

Starting a New Business

There are two general ways to start your own business. You can start completely from scratch, or you can start a business that is already part of a franchise brand. Starting from scratch is not for the faint of heart. However, for those who want to be trailblazers in their industry, or start an entirely new industry, this may be an attractive choice. The main advantages are you can start a business of your own for as little as a couple hundred dollars or less, and you have the opportunity, with the right product/service and enough hard work to see major future rewards. The main disadvantages are lack of a structure/future roadmap, and the fact that roughly 75% of new businesses fail within their first year.

Franchising, on the other hand, gives you far more support than being on your own. When you partner with a known franchise brand, you are given a full blueprint to build upon. The concept has already been proven in other markets, and so you know that if you operate similarly to other successful franchisees, you are likely to see a similar result. Another advantage is that, once you are up and running, the operating costs tend to be lower because of group ad buys and other strategies that help reduce the cost of client/customer acquisition. The two biggest disadvantages to franchising are:

  1. Higher Cost of Entry: Franchisors typically charge initial franchise fees that are as much as mid-six figures (depending on the brand) just for the right to use their name.
  2. Restricted Freedom: When you start a franchise, you are bound by the franchisor agreement. This means you are obligated to follow its terms and conditions, limiting your freedom to run the business the way you want to.

Buying an Existing Business

For those who want to become entrepreneurs with a lower risk and more predictable return on investment, buying into an existing business may be a good option. Because the business is already established, the owner can come right in and start operating, without having to go through several months of setup. In addition, banks tend to view existing businesses more favorably because of they already have a proven track record; this makes it much easier to obtain the financing you need to get started. The biggest disadvantage to existing businesses is the price; all the hard work of setting up, proving the concept, and guiding the business to profitability comes at a cost. In addition, just because someone else was able to make the business work does not mean you are equipped to do so. For those interested in purchasing an existing business, the best place to start is to speak with a business broker. A business intermediary can examine your specific circumstances and help determine if buying is the right option for you; and if so, which business model best suits your passion, skills and budget.

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