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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
 

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