3 different ways to become a business owner
There are 3 different ways to become a business owner and this article compares them along with the advantages and disadvantages of each.
We also cover some key points in Thinking of owning a business-would you be successful?
How many people want to have their own business?
Research by NAB Group Economics in Business View 2018 shows 32% of Australians “like the idea of owning a business”.
The data shows that 1 in 2 people believe our capacity for entrepreneurship is “good” to “excellent”.
The age demographics of people that say “I would love to own my own business” is also fascinating.
18-29 year-olds = 45%
30-49 year-olds = 39%
+50 year-olds = 19%
(source NAB Group Economics)
Why do people want to own a business?
Where it gets exciting are the reasons people give as their motivation to own a business.
Being the boss = 66%
Work flexibly = 64%
Sense of achievement = 52%
Financial reward = 19%
(source NAB Group Economics)
Financial reward is not the main reason for many business owners
This research may suggest that many people are valuing autonomy and flexibility over employment.
While employment can offer many advantages such as stable income and annual leave, it also can make some people feel stifled and trapped.
What are the 3 different ways to own a business?
If you are thinking of owning a business, then you could:
1 Start a business from scratch
2 Buy a franchise
3 Buy an existing business
What are the advantages of these 3 different ways to own a business?
Start a business – advantages
A startup means that you are the creator, and that may provide a massive sense of satisfaction to you.
Creating a business and making your income from zero can be a real buzz.
You get to design everything from scratch, including products, services, branding, systems and culture.
If you grow and employ people, you may also derive satisfaction from this achievement too.
A startup can be undertaken while you are still employed which enables you test your idea in the market without huge risk.
You also get to decide the speed and risk that you take on as the business grows.
Starting as a hobby and progressing to full time is also an option for many startups.
Buy a franchise – advantages
Running a franchise is a very common way that some people use to own a business.
A franchisor, in essence, leases the right to use their brand, know-how, business model, systems and intellectual property to a franchisee.
Buying a franchise is an attractive option for many people who choose to enter a franchise agreement and pay fees for an out of the box business.
A franchise means that you trade payment for speed to market.
Instead of developing everything yourself-which could take years-you pay someone else so that you access the market quickly.
Being part of a franchise means that you have other like minded people in your business community.
Trading under an established brand should also give you an advantage compared to creating a brand new brand.
A franchise should also provide access to services such as marketing, group purchasing, training and management support.
These are some examples of why owning a franchise is so popular.
Buy a business – advantages
Buying an existing business can have many advantages over a startup. One of the most significant is cash flow which is the bain of most startup owners lives.
Listen to our episodes about the basics of buying a business
Reasons to buy a business and forget starting one in 2020.
Buying a business-where to begin
Buying a business-how to find and choose the right one
Buying a business-valuation and choosing the best deal structure
An existing business that has established customers and a sound financial history means that you acquire a company that is already successfully trading. The previous owners have already done a lot of hard work that you can then build on.
An established business will most likely have employees, systems and products already in place. These assets can take years to develop and so have value to the company. Some businesses also have intellectual property or uniqueness that makes it harder for competitors to attract their customers away.
You focus your efforts on improving and growing your business, not trying to establish one.
Choosing the right company and negotiating the price is paramount.
There are many good quality businesses for sale thanks to Baby Boomers. Baby Boomers were a very successful generation at starting and growing businesses.
Many Baby Boomers now have to prepare for retirement and the succession plan for their business.
This is thought provoking podcast episode about why this could be the perfect time to buy a business Reasons to buy a business now and not start one.
What are the disadvantages of the three ways to become a business owner?
Starting a business – disadvantages
A startup is hard work, and many will fail.
It can be tough to grow sales for new businesses as the world is a “noisy” place.
For a business to succeed many things, have to happen in harmony.
Funding a startup requires cash so you must expect to put cash in rather than take cash out!
Growing a business also requires cash in most instances.
Often this cash will not come through increased sales which is a common misunderstanding by new entrepreneurs.
Startups can demand a lot of time and cash before they become self-sustaining.
This article explains 5 reasons why great ideas fail.
Buy a franchise – disadvantages
When franchising is done well, it can benefit both franchisor and franchisee.
However, it has as frequently been done poorly. One major disadvantage can be the influence that a franchisor may have on your business as a result of the Franchise Agreement.
A recent Royal Commission into Franchising in Australia highlighted many issues and unethical practices.
The report is damming and quotes “the significant, and often life changing, detriment that many franchisees endured as a direct result of being exploited by franchisors“.
A good summary is in this Australian Financial Review article.
If you are thinking about buying a franchise, it is imperative to understand your legal liability and implications.
You may have significant financial liabilities even if your franchise does not do well. Our article explains some issues with franchising-Buying a franchise-is friction inevitable?
Some people buy franchises as they believe them to be a lower risk way to own a business – this is not true.
Buy a business – disadvantages
Deciding which industry sectors will continue to thrive, and choosing the best opportunities is critical.
Buying a business needs meticulous investigation to ensure you know exactly what you are buying and that the agreed price is fair.
Getting professional help is recommended at every stage.
Skimping on professional fees may cost you dearly if you get things wrong.
Due diligence is the process applied to check that your assumptions about a business and the sale contract align properly.
A thorough due diligence process will cover all the key things, such as:
assets, intellectual property, employees, know-how, systems, supplier agreements, customer agreements, claims and financial performance.
Which of these ways to become a business means you are an entrepreneur?
The definition of an entrepreneur is “a person who sets up a business or businesses, taking on financial risks in the hope of profit.”
Whichever of the 3 different ways to own a business you choose
- start a business
- buy a franchise
- buy a business
you will be an entrepreneur!
The Should I Own A Business Podcast
Our podcast is for ordinary people who like the idea of being their own boss, whichever of the 3 different ways to own a business you choose.
We expose some hidden causes of failures and how you can to prepare yourself for owning a successful business.
The reality of business ownership is often very different from the dream, and we explain common issues so you can decide if it’s for you.
Here are some other resources that might help you.
- Self-assess yourself with our free Business Readiness Test
- Podcast Episode How to evaluate your business idea
Brendan Barrow Co-Host
The Should I Own A Business Podcast
Avoiding new business failures, one owner at a time.
Listen Before You Leap!