By: Richard Parker: Author of How To Buy A Good Business At A Great Price ©
All indicators point to continued growth within the “business opportunity” segment. There are usually three independent factors that contribute to an increase in people looking to get into their own businesses. Lower interest rates play a significant role by allowing individuals to finance their business at attractive rates. Next, the job market: when jobs are plentiful, people first think about switching companies rather than considering self-employment. When jobs are scarce, owning a business becomes a viable option. The final factor is the financial market. When the stock market is stable or increasing, and CD rates reasonably attractive, most Americans are comfortable in allowing their money to grow from these investments. However, recent years have shown that the market is not for amateurs, and so average people look to other vehicles to build their wealth; hence, self-employment.
Whenever one of these three areas is in disarray, the business opportunity market enjoys a growth spurt. Right now, all three are in flux, so the numbers of people looking to take control of their own destiny is booming.
However, the category we’ve come to know as Business Opportunities is somewhat misleading. When I hear this terminology, I can’t help but think of “get rich quick” schemes and unrealistic infomercials promising riches beyond belief.
A recent poll indicated that 50% of all Americans dream of owning a business. For most, there are three possible options that make sense: starting a business, buying a franchise, or buying an existing business. All have their pros and cons, and the choice depends upon the specific needs, goals and expectations of each individual.
I’ve always believed that everyone should start at least one business from scratch in his or her lifetime. It can be one of the most exhilarating and educational undertakings you will experience. Unfortunately, the chances for success are not very good. In fact, over 80% of all start-ups fail in the first three years and 80% of those that make it, fail in the next two years. That means that 96% fail overall; quite an expensive education, isn’t it?
- The biggest culprit contributing to failure is a lack of capital. I have started several businesses and I’ve now come to expect the following:
- Revenue comes in about half as quickly as originally expected.
- Expenses are usually much higher than anticipated
- The world is never as excited to buy my products/services as I thought they would.
Of course, many start-ups survive, and thrive, way beyond expectations. Certainly, I’ve had some blockbuster experiences, but several dismal failures. If you’re going to start a business, it is critical that you not only plan properly, but you are certain that you have the financial resources to endure a slower-than-expected period to profitability.
Running a franchise can be a wonderful starting point for those making the leap from the corporate world to self-employment. The beauty of franchises, in theory, is they provide you with a recipe to operate your business, covering all of the daily activities that you can expect to encounter. While it does sound attractive, one must also realize that the potential upside is generally limited.
Gone are the days of obtaining master franchise rights for an expansive territory, unless you buy into an unproven franchise. Typically, as soon as your franchise location begins to achieve some success, the master franchiser will open additional locations nearby. In effect, your “partner” becomes your competitor.
While franchises can be a wise choice for some, experience has shown that buying an existing franchise location can be a more prudent decision. A new location is much like a start-up, except that you’ll have a game plan and supporting materials. When considering a franchise, it is wise to investigate the business on your own, and the best way to do that is to speak with existing operators of the franchise you are considering.
Keep in mind that the franchiser’s agenda is to sell you a franchise. Surely, they want you to succeed, but opening new locations is their corporate objective. So while they may provide you with additional support, it is important for you to do your own research to be sure that you are capable of running the business and that the market and location are right. Your relationship with the franchiser is crucial. If you do not feel confident and trusting of them, then you must carefully consider whether or not you want them as your partner in this venture.
Personally, I believe that if you’re going to buy a franchise, then buy a resale. This way, you get the best of franchising and all of the pluses that an existing business has to offer.
Buying an ongoing enterprise will provide you with benefits that are not available in either a start- up or franchise (except for a resale). With an existing business, you will have:
- Historical financial information
- A built-in infrastructure (employees, customers, suppliers)
- Immediate cash flow
While this sounds wonderful, there may very well be a premium for these added benefits. However, when it comes to investing your money, the objective is to make a prudent long-term decision and an existing business offers you the largest potential upside. Plus, you’ll generally negotiate directly with the seller and so you can construct a creative deal that will allow you to acquire the business for less than you would expect.
Regardless of what road you choose to pursue, the most important thing is that you do something! Everyone knows that unless you have a senior position within a company, you simply cannot get rich working for someone else. Even if you’re an executive with an attractive compensation package, you’re one bad quarter away from unemployment.
For many, owning a business is a dream. For some, it will become reality. Your fate is in your hands. Whether you choose a start-up, franchise, or existing business, it can be done. It’s up to you. Currently, the market is in your favor and the time is right, for you to finally put yourself in a position to be your own boss.