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Once an entrepreneur has generated and researched a business idea and is ready to get started, three basic options are available - build the business from scratch, buy an existing business, or purchase a franchise. There are pros and cons for each, and the best choice will depend on the business owner’s goals, the resources available and the variety of opportunities that exist in the local community. Although no one alternative will provide guaranteed success, when each of these options is evaluated against the specific idea and the entrepreneur's own skills and abilities, decisions on how to proceed become clearer.

Starting from scratch

The most common way to start a business is to build it from scratch. When the business is developed from the ground up, the owner learns a great deal about all facets of running a company and is in complete control of the venture. Many entrepreneurs who start this way achieve a strong sense of fulfillment from having created their own business. From location to the types of services and products that are offered, to pricing and promotional strategies that will be used, the entrepreneur makes all of the decisions. In this scenario, business owners control the rate of growth and can expand the business as they are able to afford it, enabling them to manage the amount of investment and debt that they wish to take on. 

On the downside, the start-up period can be very lengthy, and the owner is required to work long hours and assume multiple roles within the venture. It can be difficult to attract and grow a customer base because the company and brand are not well known. At the same time, it is costly to establish and promote oneself against better known competitors. Initially, income can be irregular and entrepreneurs choosing this option need to assess their ability to survive for several months without a steady pay cheque.

Buying an existing business

Buying a well-established business can be a great option as it allows the entrepreneur to skip the start-up phase which can be lengthy, costly and a lot of hard work. An established location and existing relationships with suppliers and customers are all benefits to buying a business. Planning can be easier as business and seasonal fluctuations can be more easily identified. Best of all, immediate sales are available, which in turn reduces the level of risk.  As well, the previous owner and existing staff are often available to provide training and the new owner can capitalize on their experiences. Buying an existing business can also improve the chances of securing financing as banks may be more willing to consider a venture with an existing track record.

Disadvantages to buying an existing business include the need for more up-front financial outlay. Individuals choosing this option will want to make sure that they do their homework and know exactly what they are buying. In this scenario, it is important to research the business as objectively as possible and be aware of potential problems that may exist.  Old equipment, staffing issues, outdated inventory, a previously bad reputation, or unfavorable purchasing arrangements can all create costly challenges for the new owner.

Purchasing a franchise

Numerous surveys and statistics indicate that buying a franchise has the lowest failure rate and there are several benefits to this option. The reputation and brand name of the business are already established at start-up which, along with the management and business training that is usually available, helps the entrepreneur to make a successful start. Valuable market research has already been completed and marketing strategies have been developed. Other benefits to a franchise include the ability to team up with other franchisees to purchase equipment and supplies in bulk, which can reduce costs. Access to financing may also be easier as banks sometimes look at franchises more favourably. 

For some business owners a franchise is not an option. Start-up costs are typically higher, and profits generated in the business are shared with the franchisor as royalty payments. This option could also be considered more restrictive as owners are required to operate within specific guidelines and this can create frustration for the entrepreneur who values independence. Participation in advertising initiatives is usually mandatory and is based on a percentage of sales achieved. And while it is great to have ready-made contacts, sometimes the franchisor will have specific purchasing criteria, eliminating the franchisee’s ability to purchase elsewhere at lower rates. 

There are numerous factors to consider when deciding how to get a business started. By comparing the business owner’s personal preferences, strengths and weaknesses, with the advantages, disadvantages, costs, and potential for profit of each start-up option, the best business opportunity can be selected.

Mark Jamieson is the Co-ordinator of the Orangeville & Area Small Business Enterprise Centre. He can be reached at [email protected], 519-941-0440 Ext. 2270 or via cell phone at 519-942-6334.