Start up -- Franchise -- Buy out,
Which is Best for You?

By: Theodore P. Burbank, FCBI


Which is the best way for you to get into Business?

This exhibit reviews and compares the risk elements associated with each choice. The degree of self satisfaction and ego gratification associated with each choice has not been addressed although it must be acknowledged that these factors are perhaps the strongest motivators for business ownership. In this regard, start ups provide the highest degree of satisfaction and gratification and buy outs perhaps the least with franchises somewhere in the middle. Interestingly, most business observers and our own experience indicates that start ups, albeit the most satisfying choice, have the poorest chances for success.

 

Start up

Franchise

Buy out

Location

unknown

unproven

proven

Product/service
acceptance

unknown

unproven

proven

Working capital requirements

unknown

unknown

proven

Time to break-even

unknown

unproven

proven

Time to profitability

unknown

unknown

Immediate

Level of profitability

unknown

unknown

proven

% Return on initial investment

unknown

unknown

proven

Choices available

unlimited

plentiful

limited

Ability to pre-measure management skills required

guess

educated guess

visible

Ability to find the "right opportunity"

easiest

easy

difficult

"Due diligence" (check it out)

easy

easy

difficult

Opportunities for improvement

unknown

unknown

identified

Training and assistance

none

Yes - Franchisor

Yes - by seller

Financing:

unlikely

probable

likely

Outside collateral required (ie: Home)?

Yes

Likely

Seldom

Source of lending

Bank/2nd mtge (Home).

Equip. finance

Seller finance

Chances of success

low

high

high

Mr. Burbank is President of Lighthouse Financial, LLC and since 1979 he and his associates have  consulted with and provided valuation, marketing and sales assistance to more than 2,000 family and private business owners.  He is the author of "In & Out of Business . . . Happily" - "Buying a Business Made Easier" - "VALUware 6.0" Business Valuation Software - "DealMaker 4.0" Business Acquisition Software - "DealMaker docs" Transaction Documentation Software all published by Parker-Nelson Publishing.  In addition he is a contributing author to "Merger and Acquisition Handbook for Small and Mid-Size Businesses" and "Business Valuation Handbook" both published by John Wiley and Sons  and has written many articles on business sales and valuations. He has conducted seminars and addressed many trade associations in the US, Canada and abroad.  Ted is available for private consultation, valuation and acquisition assignments.  He may be reached by telephone: 508 794-1200 or by email: bizval@buysellbiz.com