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The American Dream: Startup, Acquisition or Franchise? Which is Best?

If you are thinking about going into business you have a number of choices. You can start your own business. You can acquire an existing business. You can also become a franchisee of an established network of businesses. What is the best approach? As with many aspects of life there is no right or wrong answer. Sometimes a lot depends on your individual personality and how you are wired. You should familiarize yourself with the approach to each type of business and then sit down with your accountant, tax preparer and business attorney to drill deeper into the decision making process.. Here is a quick overview of the three different approaches and some of the pros and cons of each. Start-Up: You could be the next Steve Jobs. Depending upon the type of business you want to start, there could be a modest investment in start up costs as opposed to an acquisition. You gain an awful lot of independence from the start. You are in charge of where you want the business to be located. There is no history to potentially wear you down. This is probably the most risky of business ventures, however. You will have to make a major investment of time and energy. It is often problematic to obtain financing for a start up. Even if you do achieve financing, profitability, if any, will be delayed. Acquisition: There is no hard start up work as the business and procedures are up and running. Clients, customers, goodwill, equipment, etc., are in place. There should be immediate cash flow. Projections are easier as there is company history to rely on. Yet, you may need to make a sizable investment upfront. The business may need to have an overhaul on many levels if it is underperforming. External factors such as  declining market for the goods and services may occur. There is a sizable risk factor. Franchise: A franchise is very different from the ownership model. You immediately associate yourself with an established product, brand and service.  The operating structure is in place as are the products and services. There are lots of resources to fall back on such as corporate management training, access to marketing and sales data, and assistance with advertising. It is probably the least riskiest business undertaking. However, the franchisor makes all the decisions, not you. If you are more the creative innovative type this may frustrate you. You will have to pay a fee upfront and monthly royalties to the franchisor. If the franchisor suffers a setback, so do you. There are territory restrictions. The franchisor usually does not have to renew the franchise at the end of the original term. Selling the franchise later will be more complicated and micro-managed by the franchisor. There will be numerous legal issues common to all these business undertakings as well as overlap.  Among them: type of business structure; insurance, real estate, employment, due diligence, financing, tax, security, Internet, etc. This list goes on. R. D. Adair, PLLC offers experienced business counsel. To learn more about starting a successful business – start-up, acquisition or franchise -- or how we can help you in a related matter, contact us today to schedule a consultation.


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