Entrepreneurship

Is This Your Time to Invest in a Franchise or a Startup?

Is This Your Time to Invest in a Franchise or a Startup?

Does this sound like you? You’re tired of working for someone else putting in all the effort and not reaping the benefit of your ideas and efforts. You’ve been laid off a few times and don’t think you have it in you to go through that again. Perhaps you’re looking for a good investment so you can secure your financial future. You’re in a life transition, whether it is a divorce or retirement, and you’re looking at the next chapter in your life. Or maybe, it’s just that you‘ve always fantasized about owning your own business. No matter what the circumstance, chances are the entrepreneurial bug has bitten you.

Is now your time to buy a business? Here are some options you may consider exploring.

Buy an existing business

It may seem less risky to buy an existing business than to start from scratch, but you have to perform your diligence to ensure that you are fully aware of the terms of the purchase.

One of the benefits of purchasing an existing business is that you’ll drastically reduce your ramp up time because the business (presumably) already is cash flowing and has a steady stream recurring revenue. On the other hand, there will be a higher purchasing cost because of the existing customer base, concept, brand and other work that has already been done. You’ll also need to be aware of any debt owed.

Bottom line, it may be lower risk, but will cost you more up front.

Start up a business

In the world of business, the word start-up tends to generate images of Gen-Xers hanging out in zipped hoodies, playing Ping-Pong and working on projects way into the night. It is often associated with a business that is typically technology oriented with high growth potential.

However, the term “start-up” can refer to anyone starting up a business from scratch. Starting up any new business – whether it be technology-based or not – can be an incredibly challenging undertaking. You’ll need to write a business plan, get training, do market research, choose a location (and do all the due diligence required around that to make sure of that location), get financing, figure out all the legal structure and file all the appropriate paperwork, and understand your employer responsibilities should you have employees.

Starting a business from scratch is very high risk and not suitable for anyone but the most resourceful and entrepreneurial. It can also be difficult to get a loan.

Buy a franchise

If you know you want to be your own boss, but you’re not willing to take the risk of either starting from scratch or you don’t have the higher level of investment required to buy an existing business, franchising can be a great alternative. Buying a franchise gives you all the reward with little risk due to the built-in systems provided, along with all the guidance in the start-up phase of the business.

Franchising is a business strategy for distributing goods and services through a licensing relationship. In franchising, franchisors typically provide you with an operating system, real estate site selection and lease negotiation, training and marketing support, and ongoing coaching. In addition you will have other franchisees who want to support you and see you succeed.

Franchisors provide you with all the tools to be successful. They will train you prior to your opening, and typically, all the way through your contract period (typically 10 years). Most importantly, they reduce your risk because the system has already been proven to work. They have (hopefully) worked out all the kinks, and tweaked their system through the years on the earlier franchisees as well as their company owned store (s).

Here are 14 benefits of franchising:

1) Funding Alternatives

There are many funding alternatives to financing a franchise. Franchises with strong brand names will benefit you when seeking sources of funding.

2) Franchising is Less Expensive

The typical costs associated with starting up your own business are much higher than the franchise fee you will be charged to invest in a franchise.

3) Support From the Franchisor

Franchisors provide ongoing support through coaching and training programs.

4) Strong Brand

The brand has often been already been established, which gives you an instant customer base.

5) Group Buying Discounts

Vendors give franchisees bulk discounts.

6) Details of the Franchise Disclosure Document (FDD)

Due to the FDD, franchisors must provide full disclosure of all estimated startup and ongoing costs, their financial position and more. You’ll know exactly what you’re getting into.

7) Other Franchisees

You’ll have a built-in support group through your co-franchisees. And you will be able to call them to get the inside scoop BEFORE you invest.

8) Technology Franchisors

Spend a great deal of time, energy and money on developing technology within their model to simplify the operations of the franchise.

10) Research and Development

You’ll benefit from the franchisors research and development of new products and systems. Most systems reinvest their royalty payments to continually improve their operations.

11) Proven System

Systems that have been tested and improved upon time and again will significantly reduce your learning curve of opening a new business.

12) Business Planning

Franchisors often help with your planning and keep you accountable.

13) Marketing Materials

Marketing materials are easily recreated, no need to start from scratch. Generally you will have a full library of materials to choose from.

14) Build Equity

Someone once said “the only reason to buy a business is to sell a business”. Depending on the model you choose, your business will grow in value and provide you with an asset that will increase in value in proportion to the growth in customers and revenues you create through your hard work.

There are some good reasons for not buying a franchise as well, such as lack of creative input, and little cash flow in the first year (but faster than a true start-up). Some creative entrepreneurs may be put off by having to do things the way of a pre-set system.

No matter how you choose to start your entrepreneurial run, always do your due diligence. Researching all viable possibilities, asking yourself key questions about your why and properly planning for your future business will help put you on the road to entrepreneurial success.

About the author

Jane Stein

Jane reinvented herself at 58 and launched Your Franchise is Waiting after retiring 10 years earlier from a successful wall street practice of 20 plus years. She derives great satisfaction from empowering other women to explore the financial security of being their own boss through franchising. Starting a business within the structure and framework of franchising is a natural fit for women. Her process will simplify and guide you through a process of discovery and due diligence that will assure you feel comfortable moving into your future as a business owner.

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