Aaron’s Answers: Should I buy an existing business, buy a franchise, or start my own business?

There are a lot of choices to make when starting up a new venture. One of the things that entrepreneurs have to decide is whether or not they should buy an existing business, buy a franchise, or start their own business. Each one offers advantages and disadvantages that must be weighed.

BUYING AN EXISTING BUSINESS

Buying an existing business is one that has already started; one that has been marketing, selling, and earning revenue from a client-base. It might be in various stages of start-up — perhaps a relatively new company that the founder is selling, or perhaps a well-established company from which the founder is looking to retire and move on.

I think you’re looking for two types of businesses: Either, you’re looking for an established clientele, positive word of mouth, a strong supply chain, good processes, and strong financials that you can buy, walk in on day one, and continue earning profit; or, you’re looking for a business that is currently struggling but has potential to grow.

Compared to the other two options (buying a franchise or starting your own business), you’ll need a comparatively large amount of money up-front to get into this business because it’s established already. But the advantage is, you can potentially start earning an income almost right away (depending on the stage of the business and whether or not the previous owner was active and successful in the business prior to your buying it). Expect to pay more for a healthy company that has existing cash flow.

BUYING A FRANCHISE

Buying a franchise is when you buy a brand and marketing system from a company for a business that hasn’t yet started. This is a nice hybrid model between buying an existing business and starting your own. The business may not be started up yet but you are shortcutting the process with an established and recognized brand, and a business system already in place.

You’re looking for a company that has a strong, positive presence on a larger scale (i.e. in the national market) but has not saturated your marketplace. Look for a franchise that provides support and education and all of the marketing tools you need. Perhaps compare several franchises within the same industry to identify the best one for you.

Expect to pay a franchise fee for the right to use the brand and the business system, and expect to put in time to grow your business. Depending on the franchise, the up-front fee and the ongoing fee could be small or large. If you have some money and some time, but you want a slightly faster start with an established brand, this might be a good option for you.

STARTING YOUR OWN BUSINESS

Starting your own business is the third option. It’s when you create a brand from scratch and build your own business model and products or services.

You really are starting from zero and building it up from there. Not surprisingly, it can take longer to do but many entrepreneurs prefer it because they have the most control over the process plus it generally has a lower “cost” to start.

There are costs, including financial costs, but most of the costs are likely going to be your time. And it might take a while before you establish your brand and start earning money. This is an advantage for people who want to start a business part time while they are working. But be prepared to spend a lot of time! The fail rate is potentially higher with these types of businesses because they can take a while to get off the ground and there is a lower-perceived cost to start them.

SO WHICH ONE IS RIGHT FOR YOU?

The short answer is: It partly depends on how quickly you want to earn money, and it partly depends on how much money and time you have available. (There are other considerations but these are the big ones, in my opinion). If you want to earn money as quickly as possible, buy an existing business; if you have time, start your own business. If you have more money than time, buy an existing business; if you have more time than money, start your own business.

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