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Why Would You Start a New Business?

By:  Tom Buckley of First National Business Corporation

Should you start a new business?

One of the many choices you must make as part of your decision to become a business owner is whether it is smarter to purchase a new franchise or start a new business from scratch OR purchase an existing franchise or independent business.  As in most decisions we face in life, it depends.  

There are pros and cons to each:  here are a few of the obvious ones.

With the purchase of an existing business, you likely will have financial records from the previous owner.  This will usually include the cost of goods or services you will provide as well as the expenses you will incur.  You can use this information to make wise decisions about payroll, pricing your goods or services, and to notice trends in sales and expenses.

With a start-up, it is more of a dilemma to know, truly know, what the costs will be.  You can create pro formas that predict what various costs will be as well as a forecast of how sales will go.  But these are only predictions which may or may not be wholly accurate.  The real story will come out as you plunge in.  So, from a predictive or historical perspective, I think it is fair to say that the purchase of an existing business will give you more tools and data upon which you can act and react with confidence because of what has gone on before.

However…

in another sense you are restricted and constrained by the numbers you inherit.  They can’t be changed, they are what they are.  Don’t make the mistake of assuming you can quickly reduce the costs of sales or double your sales by applying some magic.  If there are seven years running in which sales were stagnant, there is probably some good reason why that is so.

Having said that, in a franchised business you should be able to generate some excellent guidelines for how the business may grow or what your expenses may be.  Working with the franchisor and talking to other franchisees in the system will be beneficial.  The bottom line: get comfortable with the numbers, ask for more, analyze them, verify with experts, and then make your decision.

In conclusion, in itself we don’t think it is an advantage from a purely numbers perspective to buy either an existing business or franchise or to start a new business or franchise.  What counts more is doing your homework and understanding exactly what you are getting into.

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