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
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