Best Business to Purchase: Everything You Need to Know
Determining the best business to purchase will depend on a few factors, including how much time you want to spend running the business.3 min read
Determining the best business to purchase will depend on a few factors, including how much time you want to spend running the business, how much money you have available for the venture, and the operational history of those you're thinking about purchasing.
Choosing the Best Business to Buy
When you want to start a business, you have three main options:
- Purchase an existing business.
- Start a brand-new business.
- Invest in a franchise business.
If you choose to buy an existing business, you can take advantage of a degree of security and comfort that would not be present in a new business venture. The tangible and operational history of a business can help a new business owner learn from mistakes and successes, which eliminates the trial and error that come with starting a new business.
Other aspects of the business are already in place, such as:
- Operational processes.
- Vendor relationships.
- Customer and employee bases.
When someone sells a business, they typically remain onboard to provide support and assistance during the transition period. As a new business owner, you'll appreciate having the previous owner available to answer questions and go through the details of running the company. When procedures are well-established, it may be more challenging to make major changes to the way the business operates. For some new business owners, the establishment is positive, but you may not like the lack of flexibility. It can also be challenging to find the right business to buy.
The main advantages of buying an established, existing company include:
- More control over strategy and direction.
- Transition and/or training from previous owner.
- Successful venture with a proven formula and known quality in the industry.
- The option to review the company's history and records.
However, buying an existing business does have some disadvantages as well:
- Potential problems from the previous business owner.
- Ownership transfer and integration issues.
- Challenging to find the ideal business to buy.
- Harder to secure existing business purchase financing.
- More difficult to instate operational or procedural changes.
Buying a Franchise
Investing in a franchise business opportunity is a compromise between buying an existing business and starting a new business from scratch. When you invest in a franchise, you will likely receive operational support and training. However, each business has its own level of support offered, so make sure to look into what is available before you sign an agreement. Those franchising the business are incentivized to support their franchisees as much as possible since they receive royalty fees based on the profitability level or sales of each franchised location.
When you buy into a franchise business, you will likely have access to an established business plan with guidelines designed for running this specific type of business as a new owner. Some franchisors offer financing options to franchisees. A franchisor may also be more willing to assist with communication to existing franchisees to promote improvements in the overall operations. Since franchises are typically allowed in certain geographic boundaries, you may be limited in how you can operate the business to avoid stepping on the toes of other franchisees.
Review the Uniform Franchise Offering Circular (UFOC) before purchasing a franchise to make sure you fully understand the relationship between franchisors and franchisees.
If you choose to go this route, the advantages include:
- Access to detailed, step-by-step guidelines for starting the franchised business.
- Access to others who have started franchises for support, assistance, and ideas.
- Professional guidance and training.
- A continued relationship from a potential consultant on the business.
- Additional options for financing the purchase.
However, this option does have some disadvantages:
- Royalty fees (often a percentage of sales, as well as a start-up fee).
- Limited choices in specific industries.
- Boundaries around operating the business, including approved vendors, geographic areas, and financial limitations.
Starting a New Business
If you choose to start a new business from the ground up, this route has a few advantages:
- Higher potential returns.
- More control over business decisions.
- Start something new that fits a specific need (if you have an idea).
However, starting a business from scratch has disadvantages as well:
- The most challenging road for a new entrepreneur.
- Securing financing.
- Uncertainty in a new idea or business formula (no proven success).
If you need help with the best business to purchase, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.