You can know that you want to own a small business – and even which industry you want to operate in – but still not know whether you want to buy or start a business.
That’s perfectly normal, and you should weigh out your options before deciding. What are the pros and cons of each?
At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. In all of that time, we’ve worked with thousands of people who fall into these three buckets:
- Buying an existing small business
- Buying into a franchise
- Starting your own business
Buying an Existing Business
When we refer to buying an existing business, we mean purchasing an independent small business from an owner who is looking to retire or move on to other ventures. It already has its wheels in motion, and you have some freedom to make choices.
Buying Business Pros
- Local name recognition & potential for faster profits. In the surrounding community – who may make up a majority of your customer base – the business can already have a good reputation. This could mean you don’t have to spend as much on marketing, and profits will come faster.
- Easy start & discreet ownership transfer. Usually, if you continue to offer a good quality product or service, taking over a local small business isn’t detectable to a majority of its client base.
- Affordable. Between this, buying into a franchise, and starting your own business, this is on the more affordable side. You don’t have ongoing franchise royalties; you just buy out the previous owner.
- Already staffed. You may be acquiring the existing staff, too. This means you can avoid the costs and hassles of hiring and training a whole new crew.
- Some freedom of choice. Depending on your terms of purchase, the previous owner may not want you to make some changes. However, there may be room for negotiation.
Buying Business Cons
- Only small name recognition. When you buy an independent business, it can have very limited name recognition. If that’s the case, you may still have to invest in a bit of marketing to be able to grow.
- Potential for poor reputation. Make sure you read local reviews and listen to word of mouth before you buy a business. You can still turn a business with a poor reputation around, but it will take extra hard work and public relations.
- Lack of support. You don’t get support to operate your business like you would with a franchise. The previous owner may decide to offer some advice, but it would probably be very limited – especially over time.
- Only some freedom of choice. Since this business is already established and the previous owner likely won’t want you to make certain changes, you may not have full creative control.
Buying a Franchise Location
The fast food restaurant down the road from you is likely a franchise. When you buy a franchise location, you’re buying into what is essentially a pre-made business and the education and resources to run it. It offers a well-oiled machine in exchange for extremely limited freedom.
Franchising Pros
- Corporate support staff. When you buy into a franchise, you get support staff to help you in a variety of ways. We’ll go more into the specifics below.
- Quick start. Since there’s already an established operating procedure and the franchise support staff teaches you how to run it, you can get started fairly quickly.
- Larger name recognition & potential for faster profits. Depending on the franchise you buy into, there may already be a good national reputation. Franchise support staff may also run national marketing campaigns. Because people already recognize your brand, they may be more likely to work with you.
Franchising Cons
- Rigid rules. Franchises are businesses that are already planned for you. You can’t stray from the rules and visions of the franchise that are already in place.
- Expensive. This option has the highest opportunity cost. It takes a lot of money to get started, and you make ongoing franchise royalty payments. You’ll also have to pay for the location – lease or mortgage – and insurance. All of this adds up.
- Limited local brand recognition. While your brand may be well-known across the country, the local area may not know you’re starting a location there. Corporate handles national marketing campaigns, but you’ll have to make yourself known in your own community.
Starting Your Own Business
Choosing to start your own business gives you all the freedom to run with your ideas. However, with independence comes accountability; you’re truly on your own. If that sounds appealing, then this might be the best fit – but if it sounds scary, you may be better off buying a business or franchise.
We know a lot of people ask about buying real estate to start their business – however, most small businesses start by leasing a space instead. If you’re locked into owning the building for 20 years and outgrow it, you’ll have to sell it or lease it out. This hassle could be avoided by leasing for the first few years.
Starting Own Business Pros
- Full freedom of choice. This business is your vision. You can make any business decision you want when you’re not limited to a prior owner’s or franchise’s vision.
- Location selection. When the business isn’t already built, you can choose the location you want to be in. Do proper market research to find where your ideal client base is, and make sure they can get to you easily.
- Staff selection. Since there’s no staff in place, you can choose the employees that you want.
- Potentially affordable. This can be the most affordable option because you can start small and only grow as you need to. Many small businesses start by operating out of the owner’s home and grow from there.
Starting Own Business Cons
- Slow start and heavy marketing needs. You need to find your own customers when you start from square one. That means you need a lot of marketing and referrals, and you can’t just hit the ground running!
- Delayed revenue. If you’re expecting a salary right away, don’t. You will need cash reserves to keep you going, and you probably won’t see profit for a while.
- No support. You don’t get support to operate your business like a franchise would, and you have no staff already trained in to help like an independent business would. You need to figure out who you need on your team – all while you learn how to run your business.
Grow a Little, Then Grow a Lot!
Still not sure which to choose? First, decide how much control you want versus how much initial support you need. Then, look at what other businesses in your desired industry are doing. Some options may be easier if they require certain licenses or qualified staff in place.
No matter which option you choose, we see all three of these types of businesses almost equally! All of these options have their merits, and all can eventually grow to get great value out of a monthly accounting service like CSI Accounting & Payroll.
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