For many people, owning their own business is a fundamental part of the American dream. Finding a way to turn that dream into reality, though, can seem like a monumental challenge.
After all, becoming a business owner requires you to have a great idea for a company, huge sums of startup capital and years of experience—right?
Those are all important assets, but if you’re not strong in one particular area, don’t worry. There are a few different paths to business ownership: starting a brand new company, purchasing an existing one or buying into a franchise system.
Each “road to ownership” has its own pros, cons and requirements. Which one would work best for you?
When you create your own business, you have maximum freedom to execute your ideas as you see fit. There’s no corporate office telling you how to do your job.
A lot of new business owners also find they can launch their companies without raising a huge amount of money or immediately going into deep debt. (That depends on the type of business, of course. Manufacturing electric cars will demand more startup cash than, say, making wedding dresses.) Some new entrepreneurs even keep their day jobs until their company is generating enough income.
The downside of independence, of course, is athat you’re on your own. New entrepreneurs often log a grueling number of hours. Many of them also aren’t able to pay themselves anything during the company’s first few years.
Plus, when problems pop up, you will be the one responsible for finding a solution. If this is your first time in a management role, that lack of knowledge could be fatal to your fledgling business. According to the U.S. Small Business Administration, only half of new businesses make it to their five-year anniversary.
Luckily, Kansas City is home to a host of nonprofit organizations and government agencies designed to coach small business owners through the rough spots. Be sure to check out the resource directory at the back of the Thinking Bigger Guide.
The nice thing about buying an existing company is that you’re purchasing a known quantity. Someone else has already proven the business model works, and there is usually a base of existing customers. Finding a location, hiring employees, ironing out all the processes—someone else has already solved those problems.
Of course, the current owners will want to be paid for that hard work, which means buying an existing business could cost more than simply starting from scratch.
And while established businesses offer a lot of benefits, buyers need to do their research to make sure there are no fundamental problems with the company or the market in which it operates. Maybe the owners simply want to retire … or maybe they see trouble on the horizon.
Finally, realize that you won’t have quite as much freedom when you buy an existing company. Sure, you would be the boss, but you’d be stepping into an operation with employees and customers who are used to things running a certain way. You could make changes, but you need to study the company first and make your moves in such a way that you don’t break the company you just bought. (This is one reason why some business owners prefer to sell to an employee who already understands the business.)
You can learn more about buying an established business by visiting the SBA’s website (1.usa.gov/1x6m533). You’ll find tips on how
to determine a business’s value, as well as some of the many points that must be considered during a business sale.
Join a Franchise
Buying into a franchise system is a great choice for people who have the itch to own their own business, but might not have an idea for one. With a franchise, you get a business model that has been demonstrated to work. Plus, most franchisors offer an array of high-quality support with marketing, training and operations—a big help to newer entrepreneurs who might not have a full toolbox
of management skills.
But you’ll have to pay for that help. Buying into a franchise can take a larger amount of money up front than creating your own business concept. Most franchises also levy ongoing fees. In some franchise systems, the franchisees are obligated to buy certain equipment or supplies from the franchisor.
Another potential obstacle? You might operate your location perfectly, but if you’re part of a franchise that’s dogged by image problems or weak marketing, you could find yourself being dragged down, too.
Franchises also might not be a good idea for people who chafe at being told what to do. That’s because franchisors tend to have very specific rules for how its franchisees should operate. By signing a franchise agreement, franchisees agree to follow those rules, giving up some of their control in the process.
The International Franchise Association has several free educational resources on its website, www.franchise.org.