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Establishing, Franchising or Buying: What’s the Right Option for Your New Business?
Happy business owners standing with an ‘open’ blackboard.
One silver lining from the Covid-19 pandemic is that it has reignited America’s entrepreneurial spirit. In 2019, the Census Bureau tracked nearly 3.5 million new business applications. In the year By 2022, this number has risen 44%, to 5 million.
People start new businesses for a variety of reasons, including sudden unemployment during a pandemic. People are also finding that they need flexible work, and many are looking to create more fulfilling work and take control of their own destiny.
While tech startups get a lot of attention, there are a wide variety of new businesses opening up, from sole proprietorships with no employees to partnerships with multiple owners who employ dozens of employees.
There are also business owners who choose to franchise a company that licenses its business model, materials, and goods or services to investors. These investors, known as franchisees, must pay the larger company a one-time franchise fee along with royalties. Entrepreneurs can also get into business ownership by acquiring an existing business from another owner.
Are you thinking of becoming your own boss but don’t know where to start?
Next Insurance reveals the pros and cons of entering business ownership through acquisitions, start-ups, and franchising, with resources from the Small Business Administration, the Census Bureau, and news reports.
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Start your own business for ultimate control
Business owner standing behind sales desk with digital tablet.
Starting your own business from scratch gives you control over your work—from the product or service you sell to the deadlines you set for the people you hire. Startups give you a lot of creativity to try new ways to bring your ideas to fruition and see how they can improve the lives of others.
When you start with a blank sheet of paper, you are responsible for all decisions, from the type of business you want to create to how you make, sell, and market your products. It is important to write a thorough business plan that will help you consider all these details and help you achieve your business goals.
Before a startup gets your first customer, you incur costs—such as legal fees, licenses, supplies, and various marketing expenses that you may have to pay out of pocket for years. The Small Business Administration recommends listing out what they are before you start, so you can decide on startup loans, investors, and when to break even.
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Hit the ground running like a French
Male shop owner looking at laptop.
When you buy a franchise, you do business with customers through name recognition, avoiding the expensive and time-consuming costs of bringing a new business to life. While you may think of fast-food restaurants as franchises, the Census Bureau notes that franchise opportunities exist in nearly 300 industries, including hotels, beauty salons, gas stations, fitness centers and daycare centers.
In this business model, you pay a franchise fee for the right to open an outlet, royalties based on your sales, and often advertising fees. This can require a significant investment of tens or hundreds of thousands of dollars—not only in fees, but also in the costs of outfitting and opening your business space.
While you’re buying into a proven business model, owning a franchise takes some of the innovation out of owning a business. Franchisors have uniform ways of how their businesses run and look—and you should follow suit.
You also have no control over how an incident at the parent company affects your business, such as the Papa John’s public relations controversy and the NFL ending its partnership with a pizza company.
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Buying an existing business and planning a new chapter
Two female business owners shaking hands.
If financial independence is your goal, buying an existing business can be a low-risk way to reach that goal faster. Plus, someone else has done the hard work of starting the business, so you get the creativity of running your own business without the headache of starting from scratch.
When you buy another business, you’ll know the operating costs, systems and procedures, and you’ll also have trained staff and an existing customer base.
On the flip side, you need to have a lot of money to buy an existing business. You should also do due diligence to make sure the business is in good financial standing and to find out if there are any missed tax payments or other liabilities.
If equipment is outdated, you may need to invest more money to make the necessary upgrades to stay competitive. You also need to know the company culture to know if it’s a well-oiled machine or if you need to do more work to make improvements.
This story originally appeared on Next Insurance and was developed and
Distributed in partnership with Stacker Studios.
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