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An Overview of Today's Business Opportunity Market
By Richard Parker, President of The Business
For Sale Buyer Resource Center™ and author of
the most widely used reference resource and
strategy guide for buying a business for sale –
How To Buy A Good Business At A Great Price©
All indicators point to continued growth
within the “business opportunity” segment. There
are usually three independent factors that
contribute to an increase in people looking to
get into their own businesses. Lower interest
rates play a significant role by allowing
individuals to finance their business at
attractive rates. Next, the job market: when
jobs are plentiful, people first think about
switching companies rather than considering
self-employment. When jobs are scarce, owning a
business becomes a viable option. The final
factor is the financial market. When the stock
market is stable or increasing, and CD rates
reasonably attractive, most Americans are
comfortable in allowing their money to grow from
these investments. However, recent years have
shown that the market is not for amateurs and so
average people look to other vehicles to build
their wealth, hence, self-employment.
Whenever one of these three areas is in
disarray, the business opportunity market enjoys
a growth spurt. Right now, all three are in
flux, so the numbers of people looking to take
control of their own destiny is booming.
However, the category we've come to know as
Business Opportunities is somewhat misleading.
When I hear this terminology, I can't help but
think of “get rich quick” schemes and
unrealistic infomercials promising riches beyond
belief.
A recent poll indicated that 50% of all
Americans dream of owning a business. For most,
there are three possible options that make
sense: starting a business, buying a franchise,
or buying an existing business. All have their
pros and cons, and the choice depends upon the
specific needs, goals and expectations of each
individual.
Start-Ups
I've always believed that everyone should
start at least one business from scratch in his
or her lifetime. It can be one of the most
exhilarating and educational undertakings you
will experience. Unfortunately, the chances for
success are not very good. In fact, over 80% of
all start-ups fail in the first three years and
80% of those that make it, fail in the next two
years. That means that 96% fail overall; quite
an expensive education, isn't it?
The biggest culprit contributing to failure
is a lack of capital. I have started several
businesses and I've now come to expect the
following:
- Revenue comes in about half as quickly
as originally expected
- Expenses are usually much higher than
anticipated
- The world is never as excited to buy my
products/services as I thought they would.
Of course, many start-ups survive, and
thrive, way beyond expectations. Certainly, I've
had some blockbuster experiences, but several
dismal failures. If you're going to start a
business, it is critical that you not only plan
properly, but you are certain that you have the
financial resources to endure a
slower-than-expected period to profitability.
Franchises
Running a franchise can be a wonderful
starting point for those making the leap from
the corporate world to self-employment. The
beauty of franchises, in theory, is they provide
you with a recipe to operate your business,
covering all of the daily activities that you
can expect to encounter. While it does sound
attractive, one must also realize that the
potential upside is generally limited.
Gone are the days of obtaining master
franchise rights for an expansive territory,
unless you buy into an unproven franchise.
Typically, as soon as your franchise location
begins to achieve some success, the master
franchiser will open additional locations
nearby. In effect, your “partner” becomes your
competitor.
While franchises can be a wise choice for
some, experience has shown that buying an
existing franchise location can be a more
prudent decision. A new location is much like a
start-up, except that you'll have a game plan
and supporting materials. When considering a
franchise, it is wise to investigate the
business on your own and the best way to do that
is to speak with existing operators of the
franchise you are considering.
Keep in mind that the franchiser's agenda is
to sell you a franchise. Surely, they want you
to succeed, but opening new locations is their
corporate objective. So while they may provide
you with additional support, it is important for
you to do your own research to be sure that you
are capable of running the business and that the
market and location are right. Your relationship
with the franchiser is crucial. If you do not
feel confident and trusting of them, then you
must carefully consider whether or not you want
them as your partner in this venture.
Personally, I believe that if you're going to
buy a franchise, then buy a resale. This way,
you get the best of franchising and all of the
pluses that an existing business has to offer.
Existing Businesses
Buying an ongoing enterprise will provide you
with benefits that are not available in either a
start up or franchise (except for a resale).
With an existing business, you'll have:
- Historical financial information
- A built-in infrastructure (employees,
customers, suppliers)
- Immediate cash flow
While this sounds wonderful, there may very
well be a premium for these added benefits.
However, when it comes to investing your money,
the objective is to make a prudent long-term
decision and an existing business offers you the
largest potential upside. Plus, you'll generally
negotiate directly with the seller and so you
can construct a creative deal that will allow
you to acquire the business for less than you
would expect.
Regardless of what road you choose to pursue,
the most important thing is that you do
something! Everyone knows that unless you have a
senior position within a company, you simply
cannot get rich working for someone else. Even
if you're an executive with an attractive
compensation package, you're one bad quarter
away from unemployment.
For many, owning a business is a dream. For
some, it will become reality. Your fate is in
your hands. Whether you choose a start-up,
franchise, or existing business, it can be done.
It's up to you. Currently, the market is in your
favor and the time is right for you to finally
put yourself in a position to be your own boss.
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