SHOULD YOU BUY A FRANCHISE OR EXISTING BUSINESS?
June 1, 2020
Texas entrepreneurs may wonder whether to buy a franchise or an existing business.
The Small Business Administration explains how you can evaluate your options when you are weighing the purchase of a franchise against an ongoing venture.
What Are Some Differences Between Franchising and Buying a Business?
If you want a higher degree of control, you may prefer to acquire an existing business. You will likely inherit a customer list, trained employees, and historical operating expense data. You may find it challenging to master operations while also finding it exciting to drive the company’s vision.
With a franchise, you give up control for brand recognition. Franchise models may vary. In some cases, the franchisor may help with marketing, product supply, and site selection. In other models, you may acquire the right to use a name and trademark, and you sell products purchased from the franchisor.
What Should You Consider if You Want to Buy a Business?
For an existing business, you should investigate which laws may govern operations. Do you need special permits or licenses? Do zoning laws allow the company to conduct business at its site? Have you audited the company’s books and records to determine its value and projected earnings?
What Should You Consider if You Want to Buy a Franchise?
A Uniform Franchise Offering Circular may help you understand the franchise’s business, financial and legal history. Ask questions about your rights to use the franchise name and trademark, and investigate your right to operate in your desired location. Understand what support you can expect to receive with marketing, advertising, and training. Determine if the franchisor will require you to purchase certain items or meet sales quotas.
Whether you are considering a franchise or ongoing business, you must conduct due diligence to understand your risks and obligations and to evaluate the potential return on your investment.