Start up -- Franchise -- Buy out?
Which is best for you?
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.
| Success Factors |
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 |
|