Key Differences Between Buying A Business And A Franchise
When somebody is deciding to take the big step of going into business for themselves, they have a lot of decisions to make. Each one is as important as the other. What is decided early on in this venture can determine the success or the failure of the business.
Options For Going Into Business
One of the first decisions that have to be made is regarding the business itself. The interested person has some options to choose from such as:
- New business start up
- Buying an existing business
- Buying into a franchise
It can be a little overwhelming, so the best way to come to a conclusion is by making a comparison.
A New Business Start Up
For many, this is often the first option that they consider because it is the one that they may feel the most familiar with. There are a lot of steps that have to be taken to get a new startup going.
Buying An Existing Business
It is another option that may be a little easier compared to the business start up as some of the concerns are eliminated. However, it does come with its own set of risks.
Buying Into Franchise
Some may think that this is on par with an existing business, but some distinct differences make it a more viable choice for many. These are easily recognized when making a comparison.
The Planning Stage
Every business needs to start with a business plan. The franchise will already have this in place, and much of what it covers will be substantiated because the company itself is established.
The start up business will need a business plan to be developed right from scratch.
The existing business may have had a business plan, but there are no guarantees that it has been followed or can be substantiated. It is something a prospective buyer of the business would have to take the time to determine.
The Growing Pains Of A Business
Every business goes through growing pains while it is getting established. It is a critical phase for the new business owner. They often run into many challenges when it comes to this phase. For example, there may not be enough cash flow to carry the business when it is not as yet able to carry itself. It is one of the biggest stumbling blocks for a new business.
For an established business, this phase has been completed. It doesn’t mean that there are not any repercussions as a result of it. Usually, it is this stage of the business that the owner determines what is working for the company and what isn’t. They learn from mistakes made and correct them. An established business owner needs to be business savvy for this to be a success. A purchaser of an established business doesn’t know whether this has taken place. The fact that the business is still operating may not be an indicator. It has to be determined why the business owner is selling the business in the first place. If it is because it is not growing or flourishing, then it could be as a result of the effects of the growing phase.
A franchise has gone through the growing pains and weathered them successfully. Otherwise, they would not be in a position to offer a franchise opportunity. For people to buy into a franchise, it has to be an established business that is flourishing. It is partly as a result of coming through this first phase of business.
A new business owner has to establish its brand. It partially takes place during the growing phase and is a critical component to getting the business established now and allowing it to grow in the future.
An established business has had plenty of time to develop their brand. It is tough for a prospective buyer of the company to determine how much brand awareness there is.
With a franchise, brand awareness is already in place. It has been established with the successful growth of the main business and is further supported by the additional franchises.
A start up business can be challenging to get financing for. It has not proven itself in any way, so it may be difficult to convince financial institutions to lend money towards it.
An established business may fall into the same category as a start up business. Except financial institutions will want to rely on financial data that already exists for this business. Lenders will heavily scrutinize it for its past, present, and future viability.
A franchise is often easier to obtain financing for because it has a proven financial track record. The lending institutions have a lot more data that they can rely on to make their lending decisions.
Support And Training
A start up business usually doesn’t come with any support or additional training that may be needed. It can be stressful for the new business owner. They may have professionals that they can rely on for general support but none for the specific business that is being operated.
The existing business comes with limited support. The previous owner may be willing to hang around for a week or two while the transition of ownership is taking place, but in many cases, this is not enough.
With a franchise, the support and training is ongoing. The support can come at many different levels. The head office of the franchise normally tends to the marketing of the brand, which is a big plus for any business. Then when it comes to training, it is readily available as the franchisor wants to set the franchisee up for success. Also, the franchisees carry on the credibility of the brand. So it is in the best interests of the franchise to provide ongoing support and training where necessary.
Overall when doing an analysis such as this, the franchise is the better option for the majority. It is for those who want to become business owners with as many of the risks being eliminated as possible.