Buy a Business or Take a Franchise?

You have options to start a brand-new business from scratch. One other option is to buy an already existing business or to take a franchise on an already tried-and-tested business. Either option should be attractive to would-be entrepreneurs who think they don’t have a creative idea for new or better products and services or would like to skip some processes in the long route that a new business must go through.

Buying an Existing Business

Buying an already established business is not as easy as it sounds. Very few such opportunities

will fall directly on your lap. There is no established marketplace for these firms. So, chances are you will have to conduct a search. It can be slow and time-consuming. The average time required to find the right one runs about a year. The resources you can use are: newspaper classified ads under the heading ‘business for sale,’ industry and trade associations, and lawyers specializing in corporate matters.

Once your search is underway, you may come across a potential business to buy out. Try and see if you can conduct a preliminary background research on the business. If the results satisfy you, the next step is to meet the owner(s) and visit the business. From there, you ask for the figures – the operating and financial data. A seller with a distressed business may be more willing to provide numbers than one whose business is doing well. And for bankrupt
firms, the data may be obtained from the Securities and Exchange Corporation.

Before anything else, however, you have to think long and hard about what type of business interests you, what best fits your lifestyle. And of course, you have to decide how much of an investment you are willing to make.

Some questions you need to draw as you interview the owner include financial data such as:
- How volatile are the company’s cash flows?
– How fierce is the competition in the industry?
– Is it a growing or declining industry?
– How well established is the company in the intended line of business?
– Is a competent management team and work crew in place?
– Historically, has the company been growing or shrinking, and how fast?
– To what degree does the marketplace find this line of business attractive?
– At this point, you will need professional advice from either an accountant or a lawyer or both.
– Having a counsel will ensure you are protected, especially if you are signing a document.

Taking a Franchise

Taking a franchise has been called the “business with the least fears and tears.” A franchise is a legal and commercial relationship between the owner (franchisor) of a trademark, service mark, brand name, or advertising symbol, and an individual or small business (the franchisee) wishing to use that identification in a business. Generally, a franchisee sells goods or services supplied by the franchisor or that meet the franchisor’s quality standards.

Just about any product or service that you can think of is franchised. Fastfood? Think Jollibee, Max’s, MacDonalds, Dunkin’ Donuts, and countless others. Repair services? Mr. Quickie. Beauty salons? Ricky Reyesand Jun Encarnacion. Convenience stores? 7-Eleven, Uniwide, and Mini-Stop. Fitness? Slimmer’s World.

It is the business with the least tears because the franchisor makes it easy for you to get into it. It entails the least fears because you will go into business with a proven track record of success. You, as franchisee, gets to take advantage of the product of someone else’s work – including establishing the brand name, setting up operational systems and procedures, and building the market.

Indeed, the success rate for franchise-owned businesses is significantly higher than for independent businesses. However, lest you be misled, going into a franchise business does not carry with it a guarantee for success. Therefore, you still have to weigh the advantages and disadvantages of owning a franchised business. Here are things to consider (www.quintcareers.com):

Pros
- Established brand and customer base. You get the strength of the franchisor’s brand and the loyalty of its customers.
- Marketing support. Franchises often have the support of national campaign, as well as ready marketing materials for a local campaign.
- Reputable suppliers. Franchisors often have established relationships with suppliers for all the materials they need to run the business.
- Training support. Some of the better franchise operations offer management and technical training.
- Financial assistance. Loans are sometimes provided to help franchisees.
- Ongoing research and development. You can concentrate on operations because the franchisor spends time and money developing new products or services.
- Calling the shots. As in any business you can go into, you are the boss and you control your own destiny.

Cons
– Initial payout. You have to pay for the franchise fee and start-up costs. The bigger and more established the franchise, the more money you need.
– Royalty payments. The monthly royalty – equivalent to a certain percentage of the monthly gross sales – must be paid the franchisor. This means a reduced income for you.
- Marketing and advertising fees. To receive marketing support, you may need to pay these fees, depending on the contract.
- Limited creativity and flexibility. Most contracts have very explicit standards, allowing little or no alterations. You must use their system and follow their rules.
- Sole sourcing. Some contracts stipulate franchisors must buy supplies from a restricted list of suppliers.
- Locked into operation by contract. You may be stuck for many years with the wrong franchise.
- Dependence on franchisor success. The reputation of your franchise is only as good as that of the franchisor. Should he fail, you fail with him.
- Risk. There is always risk in going into business, franchised or not.

Source: Your Guide to Starting a Small Enterprise -dti.gov.ph

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