Choosing The Right Business For You: Part 2 - The Pros and Cons of Buying Into Other People's Businesses

By Carma Spence-Pothitt

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Be sure to read Part 1 of this series, The Pros and Cons of Starting Your Own Business

Yes, you may have decided to become your own boss, but you don't feel up to starting a business from scratch. That leaves you with two options.

1. Buy an existing business, or
2. Purchase a franchise.

Both of these options have their own advantages and disadvantages, just like starting your own business does.

Buying an Existing Business
At first blush, this can be a very attractive option for new entrepreneurs. You don't need to do all the research and foundation work required to establish a start-up -- the original business owner had done all the ground work. However, you will need to do some research to make sure that the business you are buying will give you the return on investment you're seeking. The pros and cons of purchasing an existing business include:

PROS:

• You can step right in and start running a business that's already in operation. No guesswork or long-range planning involved before you can start.
• Financing may be easier to obtain based on the company's existing track record.
• You've already got an established customer base and a preexisting structure for your daily routine.
• You can customize the business to suit your own needs, as long as you're still serving the needs of the customers you've "purchased."

CONS:

• Purchase price can be steep. Since the existing business owner has already made the start-up investment and built up the business identity and customer base, the purchase price can be substantially more than starting your own business.
• Existing debt. When you purchase a business that's already in operation, you're buying not only the business's assets, you're responsible for the business's liabilities as well. It's vital that you do your homework--a due diligence search--to learn everything you can about the company's reputation and outstanding debt BEFORE you make the purchase.
• Noncollectable receivables. Again, your due diligence search should include what monies are owed to the business and how old the debts are. Even though your accounts receivables are business assets, if you can't collect, then they're really a liability.

Purchasing a Franchise
If you fear that you'll end up buying a dud business, you may consider purchasing a franchise. Owning a franchise can be lucrative in financial terms, especially if you've got a good location and it's a well-known name in your market. You can either purchase a product/trademark franchise, in which case you're selling their goods, such as candles, herbal supplements, nutritional drinks, cleaning products, etc., or you can purchase a business format franchise, like Starbucks or Little Caesar's or KFC. The pros and cons of franchising include:

PROS:

• Instant name recognition. People who are already familiar with, and comfortable buying from, a well-known company are already pre-qualified as customers.
• In most cases, especially the business format franchise, the franchiser provides the business expertise, such as marketing, training, financing assistance, management guidance, site location, and operational procedures.
• Financing is easier to get based on the franchiser's expertise and existing business model (depending, of course, on whether the lending institution finds your credentials and management ability credible).

CONS:

• Limited creative control. You may have to follow the franchiser's guidelines with respect to design and appearance and what products you can sell.
• Purchase price, set-up fees, and maintenance fees can be more costly than the other two business options.
• Contractual obligations. You may have to conduct your business according to the franchiser's method of operations instead of using your own business judgment, you might have to contribute to an advertising fund controlled by the franchiser, and your sales area may be limited to a specific territory, which inhibits your ability to move to a better location.

No matter what type of business you choose, your success will depend on your entrepreneurial drive, your passion for making it work, and your commitment and dedication to its daily operations. Make the choice that's right for you, then make your dreams come alive with your actions.