Buying, Franchising, Or Starting A Business
Buying, franchising, or starting a business requires you to make serious decisions. Do you want to start a new business? Many people dream of starting their own business. Buying an existing business can sometimes be more attractive. Similarly, buying a franchise can offer more attractive opportunities than starting a business from scratch.
What is the main difference between buying an existing business and franchising? The answer is the level of control you will have over your business entity.
Buying, franchising, or starting a business: A critical decision
What Is The Meaning Of "Franchising"?
Franchising is a licensing agreement that "grants a franchisee access to a franchisor's proprietary business knowledge, processes and trademarks, thus allowing the franchisee to sell a product or service under the franchisor's business name." As a result of this agreement, the licensee (the franchisee) pays a startup fee and annual licensing fees to the licensor (the franchisor).
Buying, Franchising, Or Starting A Business: What Are The Differences Among Them?
Buying an existing business: More control but no or less guidance,
US Securities and Exchange Commission (investor.gov) emphasizes that "whether you're a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment." Investigating the seller very well in the buying, franchising, or starting a business decision process protects you from possible risks.
- Is the seller licensed?
- Is the investment registered?
- Do you understand the investment? Never invest in something you don't understand.
- Where can you turn for help
- How do the risks compare with the potential rewards?
Before buying an existing business, points to pay attention to :
- Licenses and permits
- Zoning requirements
- Environmental concerns
- The value of the business
Starting a business: Complete control but many uncertainties. When deciding on buying, franchising, or starting a business, starting your own company may seem tempting, but remember that you will have to make all the decisions yourself. Reinventing the wheel can be a bit expensive. As we explained in our previous blog, millions of new small businesses are created each year, even if there are some very successful ones, but most fail. The main reasons for failure can be insufficient funds, bad location, and bad management. From 2000 to 2019, small businesses created 10.5 million net new jobs while large companies created 5.6 million. From 1994-2018, the ten-year survival rate was 33.6%, and the fifteen-year survival rate was 25.7%.
Franchising: Pros and Cons: More Guidance But Less Control.
Franchising allows investors to invest in a successful business model with a stable supply chain, a successful training program, and expert technical support. Many franchising companies also offer exit or takeover plans. Franchising offers standardized products, financial and accounting systems. Collective buying power and sales and marketing assistance are other advantages of franchising. Buying, franchising, or starting a business, do you know about franchising industry figures in the USA? According to International Franchise Association. "Franchise Business Economic Outlook report "The industry forecasted to add 232,000 jobs in 2020, growing total employees to 8.67 million."
On the other hand, some franchises fail at a rate of anywhere from 15% to 35%. Corporate-level errors can have negative consequences for franchisees. Some franchises provide you more than a 90% chance of success.
Another negative aspect of buying a franchise is that you often have to pay regular/monthly royalties (typically ranging from 2 to 10 percent, or a monthly figure) to the franchiser based on your sales. If you want to exercise a high degree of control over how your business is run and how decisions are made, franchising is not suitable. The franchiser uses much executive power than you for running the daily business.
Buying, franchising, or starting a business: Franchising or startup
Buying, Franchising, Or Starting A Business :Possible Associated Costs of a Franchise
Before buying a franchise, you should take into consideration the following associated costs:
- Location /Facility, building(s)
- Necessary equipment
- Promotion and advertising fees
- Working Capital
- Opening Inventory
Federal and State Laws: Franchise Registration States
Although US Federal Trade Commission ( FTC) doesn't require franchisors to register with any government agency, some states require franchise sellers to register with the state agency indicated. In the USA, 15 states, namely California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin, require a franchisor to register with the state agency indicated in the regulations. FTC states that "The Franchise Rule was put in place to ensure consumers have key information to weigh the risks and benefits of their potential investment."
Wheather you are buying, franchising, or starting a business, ask an expert lawyer and business consultant to help you prepare essential documents such as:
- Financial statements
- Contracts and leases
- Purchase price adjustment
- Sales agreement
- Letter of intent
- Confidentiality agreement
- Tax returns
Franchising or reinventing the weel franchise.org
In a nutshell,
If you are looking for buying, franchising, or starting a business, you should evaluate the option and your circumstances together. Many people dream of starting their own business. Buying an existing business can sometimes be more attractive. Similarly, buying a franchise can offer more attractive opportunities than starting a business from scratch. Franchising is a licensing agreement that grants franchisees access to a franchisor's proprietary business knowledge, processes, and trademarks to sell a product or service under its business name. Starting your own company may seem tempting, but you will have to make all the decisions yourself. Reinventing the wheel can be a bit expensive. Franchising allows investors to invest in a successful business model. On the other hand, you often have to pay regular/monthly royalties (typically ranging from 2 to 10 percent, or a monthly figure) to the franchiser based on your sales. Ultimately, the best option for you depends on your particular circumstances.
As A Team, We Are Ready to Help You!
To start and run your business in the USA, you need a lot of documentation to be prepared. When creating a successful e-business, we can help you. You cannot be an expert in every subject you need. An expert consulting firm you can trust will save you time and money.
Before buying, franchising, or starting a business, our business consulting team can help you avoid any possible problem.
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