You’re thinking about taking a step into business ownership. You have options available: should you buy or start a business? While there is risk to both, owning your own business can give you more freedom and the chance for greater financial reward.
Options for Business Ownership
There are several types of businesses you can become the owner of. Let’s go through the options and see which might be the right fit for you.
A start-up means you’re building your business from the ground up.
Buying a Business
Buying an existing business means they have a proven track record of success, and you are going to continue that.
When you buy into a franchise, you are buying the marketing support, business strategy, name recognition and assistance from the overarching brand.
Pros and Cons of Starting a New Business
When looking at the start-up option, there are pros and cons to building a business from scratch. Let’s go through that together.
Flexibility and Control
Owning your business from the beginning gives you flexibility and control over how your operation is run. You have the ability to create a business plan that fits with your vision.
Execute Your Vision
Chances are you have a vision in mind for your start-up business. When you own it from the beginning, you can create the company culture and hire employees that fit well with your business and goals.
Smaller Initial Investment
When looking at the costs of starting a small business, you will want to have enough money up front to cover the startup costs. This will likely be a smaller initial investment than purchasing an existing business or franchise, but it will require financial preparation beforehand.
Starting up a business is a higher risk than purchasing an existing business or franchise. A common risk is that you may not have brand recognition immediately and will likely need to invest in marketing to sell your products. Another factor that makes starting a business risky is whether operations can run efficiently enough to turn a profit.
Harder to Find Financing
When it comes to financing your start-up, you may consider physical space, employees and the equipment you need to be successful. Financing this is an important first step, but it can be daunting. In fact, the number one reason why startups fail is lack of financing or investors. Fortunately, there are many small business financing options available for you to explore which is right for you.
Factors to Consider When Buying an Existing Business
The advantage of purchasing a business is that it has a proven track record of success. However, there are factors to consider and we’re here to weigh out the pros and cons of buying an existing business.
Proven Track Record
One of the advantages of buying an existing business is that it has recognition in the marketplace. With the existing customers of this business, they can help keep you going while you take ownership. You can also perform market testing on new products you want to implement into the business and see how customers react.
Reduced Startup Time
Another benefit of purchasing established businesses is that you can jump right in. There’s likely to be reduced startup time when it comes to space, product development, inventory, building a customer base and hiring employees, just to name a few.
Easier to Secure Funding
When purchasing an existing business, the established track record can make it easier to secure funding. Business valuation determines the economic value of the business, and with a successful one, can be the argument for receiving the funding to further your vision.
Existing Relationships & Reputation
When it comes to purchasing a business, you have existing customers and relationships established. Your business may have reputations within the supply chain when it comes to suppliers and vendors that you work with on a regular basis.
High Initial Investment
So far, you may be thinking that purchasing an existing business sounds pretty good. But what are the disadvantages of buying an existing business? To start, the initial investment in the purchase price will likely be higher than starting your own.
For existing businesses, they already have business plans in place. You will be coming in as new leadership which can sometimes lead to staffing problems and cash flow issues as you prove yourself and reinvent the business to be your own. You are likely to face operational changes, and as you do, consider auditing your business strategy to get a deeper understanding of where you can improve your business.
Personalizing Your Business
The previous owner of your business will have put their own touch on the operation. It may be a challenge for you to establish your own personalization and how you want the business to look to those you employee and serve.
What to Know About Buying a Franchise
If starting your own business or purchasing an existing one may not seem like the right fit, consider buying a franchise. Here’s what you need to know.
When you purchase into a franchise, there are many logistical aspects that are going to already be in place for you. You will likely have marketing support right out of the gate, a site location picked for you and an overall lower risk.
As a franchise, you will have already established brand recognition without even being open yet. Your franchise with have a reputation and customer base that comes with the logo.
While it may seem easier to jump right into a franchise, you will have business operations that you may need to follow. You will have franchise owners that set the vision for the brand. You may also have a set contract length that you are legally responsible for. These all can make it feel like you have limited control over your business.
High Startup Costs
Another aspect of purchasing a franchise to consider is the upfront cost of the business. Purchasing a franchise could cost you hundreds of thousands of dollars to get started.
Support When You Need It
Taking the next steps towards business ownership is a big deal. No matter what type of business you’ve decided to take ownership in, Farm Bureau is here to help. Talk to a financial advisor today to talk through options and see which might be the right fit for you.