Starting a business: Start, buy or franchise?

There are several ways to start a business, each with benefits and challenges. There is no right answer and the type of business that’s best for you will be guided by your interests, passions, skills, financial situation and goals. Whichever path you choose, it’s going to be an adventure!

In this article, we’ll cover starting a business from scratch, buying an existing business, or going into a franchise.

 

1.  Starting a business from scratch

Starting a business from scratch will always require a leap of faith. You’re starting with no customers, no brand recognition and no cash flow. That said, it’s an exciting journey and incredibly rewarding to build a successful business purely from your skills and energy.

Advantages:

• You’ll have complete control and creative freedom over the business.
• You’re starting with a blank canvas and can choose and set-up every aspect of the business.
• You can develop your business and grow it on your own schedule.
• You can set your own hours to work around family life.
• You won’t be bogged down resolving any lingering issues left by a previous owner.

Disadvantages:

• It may be difficult to obtain the initial finance.
• You won’t have an established customer base and will be competing with strong, established businesses.
• Your business may not be profitable for some time, so you’ll need to have enough capital to cover the lean years.

 

2.  Buying an existing business

For some people, buying an existing business might be a better option than starting from scratch. If you’ve done your homework well, buying an existing small business could eliminate a lot of risk, time and stress.

Advantages:

• Buy into pre-existing success with an established customer base.
• It can be easier to obtain finance.
• It will be the faster and more efficient way to enter the market.
• It comes with existing equipment and stock.
• There will be pre-existing processes, systems and trained staff.
• You will have instant revenue.
• Previous financial records give you an estimate of running costs and profits.

Disadvantages:

• The business may have financial or legal problems so due diligence is key.
• The business’s success may depend on the skills and experience of the previous owners or key staff.
• The previous owners may be selling because they see tough times ahead so you may not be able to grow or expand the business.
• Risk may be high if the business relies on a few major customers or suppliers.
• When you buy a business, you’re paying for ‘goodwill’ which can be tricky to put a value on. You’ll need advice from your accountant to negotiate this aspect of the seller’s asking price.

 

3.  Buying a franchise

Buying into a franchise can be a good alternative to starting from scratch. Franchises give small enterprises the competitive advantage of a well-known brand – something which can take many years for an independent venture to build up. Franchises aren’t for everyone though. Your decision to operate one will depend on what you want out of your investment, your lifestyle goals and how you prefer to use your skills and experience.

While franchises offer a strong framework for success, they do not automatically guarantee success. It is possible for franchise businesses to fail because the franchise system isn’t successful, but more often than not they fail for the same reasons other businesses fail – economic downturn, lack of management expertise, poor cash flow or changed market conditions. Just like any business, there are advantages and disadvantages which you will need to be comfortable with before embarking on your new adventure.

Advantages:

• Association with an established brand, product or service.
• Initial management training and ongoing support.
• Access to established procedures, processes and systems.
• Opportunity for people with little or no business experience to learn core business skills and have access to a successful business model.
• Benefits from group purchasing and marketing.
• It may be easier to obtain start-up finance for the business.
• Assistance with lease negotiations, site development, and shop fit out.
• The franchisor has a vested interest in franchisee success.

Disadvantages:

• Less autonomy when making business decisions.
• You may only be able to operate in a restricted area.
• Ongoing fees and profit sharing to the franchisor.
• Franchise agreements can leave little room for creativity.
• Bad performances by other franchises may affect the overall reputation of the brand.
• Less control if you decide to sell as you will need to follow certain procedures and have your buyer approved by the franchisor.
• At the end of the agreed period the franchisor is not bound to renew the franchise.

 

Choosing an ownership structure for your business

There are several different legal structures which can be utilised to own and operate a business.

Choosing the best legal structure for your business is important as each structure has different rules regarding issues such as tax, liability, succession, ownership and disposal of the business.

You can read about the different types of structures and the advantages and disadvantages of each in this article.

 

Do you have a support network of advisors you can trust?

Right from the start of your business journey you’ll need professional advice from your business advisor/accountant, lawyer, financial advisor, banker and insurer to set up your business and minimise your risk of legal or financial problems.

As specialist business accountants, Marsh & Partners help our clients create a successful and sustainable business. The kind of business which will support your current needs and future goals. From sorting out the easy stuff like bookkeeping, to navigating complex tax and business issues, we get you past the roadblocks. If you’d like to get in touch for an initial consultation, you can contact us here.

 

Further help

For everything you need to know in one comprehensive guide, download our Starting a Business Guide. In this free guide, we’ve put all the information in the one place, so you don’t have to go searching. We’ll take you through each step of starting a business, give you options to consider and help you understand what’s ahead.

If you would like some help to get your business off the ground, we invite you to contact us for a chat. You can reach us on (07) 3023 4800 or at  mail@marshpartners.com.au.

Lastly, you can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. We’ll help you set goals for your business, devise an Action Plan to make them happen and meet with you regularly to ensure you stay on track.

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