The lure of private enterprise can be a strong one. Striking out
on your own promises independence, the possibility of financial
security--even wealth--and the ability to grow a business from the
ground up.
But almost from the very first time the thought enters your
mind, there are a million questions that need to be answered. One
of those questions is: "Should I start a business from
scratch, buy an existing business, or purchase a franchise or
business opportunity?" That question is not an easy one, and
its answer will depend on your individual goals and resources.
Each choice has its own unique advantages, according to Tom
Gillis, who has spent 50 years as a business owner, entrepreneur,
lawyer, CPA and management consultant in Houston. He's the
author of Guts & Borrowed Money: Straight Talk for Starting
and Growing Your Small Business (due in February 1997 from Bard
Press, $19.95, 800-945-3132).
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Starting a business from scratch can give you a sense of
accomplishment and ownership that purchasing an existing business
or franchise simply can't match. The downside is that you
won't have instant name recognition or an established track
record with customers or suppliers.
"Acquisition of an established company," Gillis says,
"becomes attractive in three situations: when you haven't
found `the idea' which really turns you on and you find it in
an existing business; when you have more money than you have time
to start a business from scratch; when you want to grow but lack a
compatible product, service, location or particular advantage that
is available from an owner who wants out."
The critical question, according to Gillis, is: What do I gain
by acquiring this business that I wouldn't be able to achieve
on my own?
In terms of franchising, the primary benefit is also the main
drawback. As Gillis says, "You're not going to be in
business alone." While this can be good news in terms of name
recognition and "clout," it may be bad news in terms of
your independence.
Somewhere between purchasing a franchise and purchasing an
existing business is the "business opportunity," which
capitalizes on the benefits of franchising (such as providing you
with a packaged approach to running a particular business) without
burdening you with some of the pitfalls of franchising (such as
being restricted to certain advertising or marketing approaches, or
having to pay franchisor fees). All franchises are business
opportunities--but not all business opportunities are
franchises.
For example, the owner of a successful housecleaning business
might decide to package and sell the specific, unique process used,
along with his or her proven marketing strategy. Purchasers would
then be free to market and operate their resulting businesses in
any manner they choose. A business opportunity is often one of the
easiest and least expensive ways to start a business.
Kay Bauer is a Eau Claire, Wisconsin, entrepreneur who has
successfully owned and operated three businesses: Impact
Advertising (an existing business which she purchased), which sells
promotional products like mugs, pens and other trinkets that
companies use to promote their business names; The Balloon
Connection (a business which she started on her own and later
sold), which offers an alternative to flowers by using balloons to
create bouquets and other decorative items; and Trophies+ (a
company which she also began on her own and continues to operate),
which sells plaques and awards.
One bit of advice that Bauer would offer to would-be
entrepreneurs who must choose between starting from scratch, buying
an existing business, or purchasing a franchise or business
opportunity: "Do your homework."
Bauer didn't attempt to make a purchasing decision on her
own. She talked to friends who were operating businesses. She hired
financial advisors to help her make an informed choice. And she did
a lot of legwork.
"I had to get all kinds of figures together on what it
would cost if I started my own business: the fees that were
necessary; how much it would cost to obtain new clients, compared
to the value of existing customers; how much time it would take for
me to develop a reputation, to develop contacts; etc." Because
Bauer knew exactly what she was purchasing, and was able to compare
the cost of this purchase to the cost of going it alone, she was
able to make an informed decision.
The same considerations you would make in purchasing an existing
business are applicable when considering a franchise. With a
franchise, though, it pays to be extra cautious and to be certain
that you understand the different provisions in the franchise
contract. What does your money cover? What is not included?
One of the primary reasons that Bauer shied away from
franchising was the issue of control. "I just felt that I had
far more control over what I did," she says. "I was lucky
that I had enough financial resources that I could do it without
backing from someone else."
Bauer offers three additional tips to those who are considering
which of the options is best for them:
1) Don't skimp on research. "I see a lot of
people who start a business because they think it's `neat.'
You have to research your business. If there are 100 companies in
the same town that do what you do, chances are you're not going
to be extremely successful. You have to find out how unique your
company is. Check out your competition."
2) Invest in expert advice. "I've used the same
consultants each time I've started a business. As much as it
cost me, it's paid off every time; I got more information from
them than I could have from anybody else."
3) If you're buying an existing business, a business
opportunity or a franchise, give specific consideration to the
established reputation of the business. "Buying a bad
reputation is not a smart way to do business--it takes hunting to
find out about a business reputation." There are a number of
ways to do this. First, ask around; chances are you'll be able
to unearth information simply through word of mouth. You may also
wish to obtain a list of the company's suppliers and gather
information from them. You should also contact the Better Business
Bureau and your local chamber of commerce.
Regardless of the route you take, Bauer emphasizes that
"any business is your reputation." Take the
decision seriously and rely on the many resources available to help
you make an informed choice.
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