PaulSimister
01-10-2009, 11:13 AM
As the recession increases throughout most of the developed world, it is inevitable that some of those people who are made redundant, laid off or feel vulnerable will see this as the opportunity to become their own boss.
A great move if you are prepared for it.
There are three basic approaches
1 - You build your own business, effectively starting with a blank sheet of paper and deciding what you want to sell to whom and why they should buy
2 - Buying into an established franchise, where you take someone else's business design and roll it out in a new geographic area
3 - You buy an established business - either a proven business that generates good profit but is expensive or a business that has fallen on hard times but which has the potential to be turned around
Each has its advantages and disadvantages.
Starting A Business
Starting a business from scratch is difficult and that's why the failure rates are so high. You hear some people say that it can be as high as 9 out of 10 will fail but the last statistics I saw (from the US) said that 62.8% will fail within the first six years.
But you get to build the business you have always wanted provided it is commercially viable. You are free to be a true entrepreneur and to create something special.
Buying A Franchise
Success rates in franchises are much higher because you are buying a proven system although you need to do careful due diligence (checking out the deal before you buy) to make sure that it is the great opportunity the franchisor is presenting.
Talk to existing franchisees about the franchise, the promises being made and in particular how easy it is to find customers who will buy. It takes time to build a business and you may have used up much of your money to buy the franchise licence.
The creation process is done for you and it can literally be a "business in a box" which you set up in your region.
But that is also the disadvantage. You are not creating something. You have little freedom of action and may not even have discretion on your own pricing. You must follow the rules of the franchise which is a key strength from the customer's perspective.
You wouldn't expect to go into McDonalds and be told that you can't get a Big Mac or Double cheese burger because the owner was a vegetarian. A silly example but it is designed to make the point.
McDonalds is a great example of the franchise system working - no matter where in the world you go, you will get consistency. Not great burgers but consistent systems and clean toilets.
Buying A Business
In the UK there is a business for sale newspaper called Dalton's Weekly full of small businesses which can be bought - shops, guest houses, hotels, service businesses and even manufacturers.
When you buy a business, it is pay day time for the previous owner who will expect to receive a reward for all his or her sweat equity.
There are three main ways of valuing a business:
1 - based on asset values
2 - based on profits generated
3 - combination of the two
If you buy a business that is performing well, you will be asked to pay a high price and you risk accidentally damaging profitability.
Obviously you wouldn't do it intentionally but you've probably experienced a restaurant or hotel that used to be excellent and was sold, and unfortunately things went down hill fast.
The recession also highlights the fact that just because the business performed well last year, it may not be performing well this year or in future because of events outside of your control.
Alternatively you can buy a business that is on its knees and pay very little for it. That's certainly can be attractive if you are an experienced manager with a track record of business improvement.
But if you are less experienced, it is a gamble. It is difficult getting used to being the boss when performance is good, but when financial problems set in, the stress intensifies quickly.
Your Plans And Experiences
That's a very brief summary and it's now time to share.
What has been your experience?
Have you gone down one path and was it a great success and what helped make it a success?
Or was it a painful lesson. If so what have you learnt?
I have tried to develop this into a thread where potential entrepreneurs, franchisees and owners of small businesses who haven't decided which route they are taking, can see which mkes most sense to them.
A great move if you are prepared for it.
There are three basic approaches
1 - You build your own business, effectively starting with a blank sheet of paper and deciding what you want to sell to whom and why they should buy
2 - Buying into an established franchise, where you take someone else's business design and roll it out in a new geographic area
3 - You buy an established business - either a proven business that generates good profit but is expensive or a business that has fallen on hard times but which has the potential to be turned around
Each has its advantages and disadvantages.
Starting A Business
Starting a business from scratch is difficult and that's why the failure rates are so high. You hear some people say that it can be as high as 9 out of 10 will fail but the last statistics I saw (from the US) said that 62.8% will fail within the first six years.
But you get to build the business you have always wanted provided it is commercially viable. You are free to be a true entrepreneur and to create something special.
Buying A Franchise
Success rates in franchises are much higher because you are buying a proven system although you need to do careful due diligence (checking out the deal before you buy) to make sure that it is the great opportunity the franchisor is presenting.
Talk to existing franchisees about the franchise, the promises being made and in particular how easy it is to find customers who will buy. It takes time to build a business and you may have used up much of your money to buy the franchise licence.
The creation process is done for you and it can literally be a "business in a box" which you set up in your region.
But that is also the disadvantage. You are not creating something. You have little freedom of action and may not even have discretion on your own pricing. You must follow the rules of the franchise which is a key strength from the customer's perspective.
You wouldn't expect to go into McDonalds and be told that you can't get a Big Mac or Double cheese burger because the owner was a vegetarian. A silly example but it is designed to make the point.
McDonalds is a great example of the franchise system working - no matter where in the world you go, you will get consistency. Not great burgers but consistent systems and clean toilets.
Buying A Business
In the UK there is a business for sale newspaper called Dalton's Weekly full of small businesses which can be bought - shops, guest houses, hotels, service businesses and even manufacturers.
When you buy a business, it is pay day time for the previous owner who will expect to receive a reward for all his or her sweat equity.
There are three main ways of valuing a business:
1 - based on asset values
2 - based on profits generated
3 - combination of the two
If you buy a business that is performing well, you will be asked to pay a high price and you risk accidentally damaging profitability.
Obviously you wouldn't do it intentionally but you've probably experienced a restaurant or hotel that used to be excellent and was sold, and unfortunately things went down hill fast.
The recession also highlights the fact that just because the business performed well last year, it may not be performing well this year or in future because of events outside of your control.
Alternatively you can buy a business that is on its knees and pay very little for it. That's certainly can be attractive if you are an experienced manager with a track record of business improvement.
But if you are less experienced, it is a gamble. It is difficult getting used to being the boss when performance is good, but when financial problems set in, the stress intensifies quickly.
Your Plans And Experiences
That's a very brief summary and it's now time to share.
What has been your experience?
Have you gone down one path and was it a great success and what helped make it a success?
Or was it a painful lesson. If so what have you learnt?
I have tried to develop this into a thread where potential entrepreneurs, franchisees and owners of small businesses who haven't decided which route they are taking, can see which mkes most sense to them.