The Coronavirus has been an earth-shattering period and besides the collateral damage of health and life loss, we continue to witness independent and corporate businesses closing.
At the same time, there are many businesses still in operation and quietly being listed for sale with many in operation for decades.
Is risk factor reduced when considering to purchase a business over 10 years old compared to one less than 5 years in operation?
I’m periodically hired to investigate this very topic and can say, the level of risk remains about the same. If the business is very young or has operated successfully for generations, I usually find the level of investment risk factor is pretty much comparable, but for different reasons. What is equal is the amount of scrutiny and due diligence required before acquiring.
Should you expect the level of sales reporting detail and business information the same, no matter how old a business is?
In my opinion yes. The difference will be reflected in the tracked history of sales and spending e.g. P&L. A business with a long history in operation offers a better more usable average trend in sales and expenses.
Is it better to consider investing in a business already in operation or invest in your own?
Pros in purchasing an operating business:
- Brand name recognition
- Quicker entry time
- Existing process and procedures
- Trained staff already familiar with the operation
Cons in purchasing an operating business:
- Breaking old habits
- Changing existing business practices causing possible disruption
- Discovering excessive waste or ineffective buying practices
Starting a business from scratch.
Pros:
- Clean slate with planned business flow layout
- Newer equipment and infrastructure
- Train staff without breaking old habits
Cons:
- The potential to spend more on building requirements opposed to ones grandfathered-in with operating business
- Longer time of entry
- Requiring more outside services to build e.g. architectural design, contractor, permitting etc
- Cold start staff train staff
- Creating new process and procedures
Is it better to invest in a franchise or my own business?
Check out other helpful articles:
Franchise vs starting your own
How to open your retail shop
Expanding your business
Franchise Compared to Self Established Business
| Factors & Capabilities | Franchise Business | Your Business |
| You decide on the best possible location | No | Yes |
| Pay an initial fee | Yes | No |
| Space & equipment requirements | Yes | No |
| Pay a % from gross sales (not tax) | Yes | No |
| Products offered & charge what you want | No | Yes |
| Ongoing training support | Possibly | Hopefully |
| Monthly sales reporting required | Probably | No |
| Continued new menu concepts / trends | Yes | Hopefully |
| Initial staff training and procedures | Yes | Need to establish |
| Provide recipes & processes | Yes | No |
| Sign design & place where you desire | No | Yes |
| Negotiate lease | Probably not | Yes |
| Control hours of operation | No | Yes |
| Factors & Capabilities | Franchise Business | Your Business |
| Purchase used equipment | No | Yes |
| Design shop as you like | No | Yes |
| Trained in sanitation | Yes | Hopefully |
| Open another location anytime | No | Yes |
| Benefit from national advertising campaigns | Yes | No |
| Mandatory advertising budget | Yes | No |
| Make and sell your own specialty items | Maybe | Yes |
| You’re the boss & no one to report to | Probably not | Yes |
| Dress code & theme requirement | Yes | Hopefully |
| Easiest to operate | No | No |
| Guaranteed business success | Absolutely not | Absolutely not |
Finding reliable and current information on a franchise or sole proprietor business is recommended. Read up on all options and important facts pertaining to the business if considering investing in a franchise vs an independent business.
As with anything you are prepared to invest in, meeting and speaking with the owner is valuable and remains the best way to receive first-hand, unbiased information compared to simply the franchise sales group or independent operator.
Schedule time with Darryl, he will show you the big picture to help you make the best decision for you and your family.
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