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Buying a Business
Many find the idea of running a small business appealing, but lose their
motivation after dealing with business plans, investors, and legal issues
associated with new start-ups. For those disheartened by such risky
undertakings, buying an existing business is often a simpler and safer
alternative.
Advantages
The main reason to buy an existing business is the drastic reduction
in start-up costs of time, money, and energy. In addition, cash flow
may start immediately thanks to existing inventory and receivables.
Other benefits include pre-existing customer goodwill and easier financing
opportunities, if the business has a positive track record.
Disadvantages
The biggest block to buying a small business outright is the initial
purchasing cost. Because the business concept, customer base, brands,
and other fundamental work has already been done, the financial costs
of acquiring an existing business is usually greater then starting one
from nothing. Other possible disadvantages include hidden problems associated
with the business and receivables that are valued at the time of purchase,
but later turn out to be non-collectable. Good research is the key to
avoiding these problems.
Buying a Franchise
An important step in the small business start-up process is deciding
whether or not to go into business at all. Each year, thousands of potential
entrepreneurs are faced with this difficult decision. Because of the
risk and work involved in starting a new business, many new entrepreneurs
choose franchising as an alternative to starting a new, independent
business from scratch.
One of the biggest mistakes you can make is to hurry into business,
so it's important to understand your reasons for going into business,
and to determine if owning a business is right for you.
If you are concerned about the risk involved in a new, independent
business venture, then franchising may be the best business option for
you. But remember that hard work, dedication, and sacrifice are essential
to the success of any business venture, including franchising.
What is Franchising?
A franchise is a legal and commercial relationship between the owner
of a trademark, service mark, trade name, or advertising symbol and
an individual or group wishing to use that identification in a business.
The franchise governs the method of conducting business between the
two parties. Generally, a franchisee sells goods or services supplied
by the franchisor or that meet the franchisor's quality standards.
Franchising is based on mutual trust between the franchisor and franchisee.
The franchisor provides the business expertise (marketing plans, management
guidance, financing assistance, site location, training, etc.) that
otherwise would not be available to the franchisee. The franchisees
brings to the franchise operation the entrepreneurial spirit and drive
necessary to make the franchise a success.
There are primarily two forms of franchising:
Product/trade name franchising and
Business format franchising.
In the simplest form, a franchisor owns the right to the name or trademark
and sells that right to a franchisee. This is known as "product/trade
name franchising." The more complex form, "business format
franchising," involves a broader ongoing relationship between the
two parties. Business format franchises often provide a full range of
services, including site selection, training, product supply, marketing
plans, and even assistance in obtaining financing.
To learn more about:
The advantages and disadvantages of franchising,
The franchisor's responsibilities,
What is contained in a franchise packet, and
Understanding the franchise contract,
Franchise Registry
Franchise Directories & Evaluation
For additional information:
Consumer Guide to Buying a Franchise
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