When you decide to go into business, you have several options. Below are three ways to start a business, along with their advantages and disadvantages.
Starting Your Own Business from Scratch
Advantages:
- The costs are lower because you only need to pay for setting up the business. You can also finance the project in stages, depending on your financial resources.
- You have greater freedom in choosing the location and the pace of growth. Since you are starting from zero, you have complete flexibility to establish the business the way you see fit.
Disadvantages:
- The time spent creating the business may mean your project will take longer to launch compared to the other two options.
- If you choose to create a business, you invest time and money in a venture without any track record or customer base. Obviously, this option is riskier than the other two.
- For the same reason mentioned above, it may be more difficult to obtain financing.
Buying an Existing Business
Advantages:
- The business you buy already has a customer base, meaning you will have immediate revenue from day one as owner.
- Since the business already exists, it will be much easier for you to make financial projections for the initial years.
- Because the business you acquire has an established history, it likely already has commercial relationships with various suppliers, which makes short-term management much easier.
Disadvantages:
- The purchase price is higher, as you are paying for the company’s history, in addition to the customer base developed over the years (goodwill).
- Making changes in the short term is more difficult. Since you are buying a business that is already in operation, you are limited in the modifications you can make to its location, internal setup, and branding (logo and name).
Buying a Franchise
Advantages:
- You have the opportunity to use a well-known trade name or trademark. This is often the most challenging aspect to develop when starting a new business.
- You have access to consulting services offered by the franchisor. The operating fees you pay to the franchisor give you access to specialists in administration, law, and operations management.
- You can benefit from national advertising campaigns.
- Most franchisors offer financing options for purchasing the franchise.
- Your production costs will be lower because you benefit from the group’s purchasing power.
Disadvantages:
- When buying a franchise, you must comply with the franchisor’s operating manual, meaning your freedom in running the business is limited. You will spend more time on operational management than on developing the business.
- The contract with the franchisor is often restrictive, particularly regarding pricing, offered products, sourcing, controls, obligations, and managerial powers.
None of these three options is definitively more advantageous than the others. It mostly depends on the type of entrepreneur you are.
Do you want to learn more about starting a business, or would you like free support to make your business plan a reality? Contact a counselor at SADC Arthabaska-Érable, and they can guide you with practical solutions!
