Are you thinking of starting your own business and are still undecided about whether you should buy an existing business, start up a business from the beginning, or else buy a franchise? If so, here are some things to think about to help you decide if buying an existing independent small business or else a franchise is right for you.
Carefully Consider Your Options
When you acquire an established business, you purchase important intangible assets, such as a customer base and brand recognition. Risk is potentially lower than owning a startup because you will have immediate cash flow. Also, the previous owners have hopefully ironed out the kinks in the beginning stages allowing you to focus on the future. After finding an affordable, promising business, a “due diligence” process is needed to determine if the company is the right fit for you. Some of the financial factors to investigate include:
1. Profit and loss statements from previous years
2. Projected financial statements
3. Last three years of tax returns
4. Cancelled checks
5. Lease conditions
You will want to learn as much as possible about the business beyond what the seller tells you. An attorney or CPA can advise you during this intensive process.
Should You Purchase?
You’ve found your dream business, which passed a thorough investigation. Now what? You must decide whether to purchase the business entity or its assets. These are the major differences:
1. Buying the “business entity” entails buying the corporation or limited liability company (LLC). You are purchasing the assets and contracts but also any existing debts. You will need to ask questions and do your homework to determine the actual debts and liabilities, such as any possible tax liens or unpaid loans.
2. Buying the “assets” means you are buying the tangible items like equipment, furniture, and property. However, you must create a new company with new loans, leases and contracts as if the seller’s business no longer exists.
Should You Buy A Franchise?
Another choice for small business ownership is purchasing a franchise. What exactly is a franchise? An entrepreneur buys the license of a larger trademarked company to sell its products or services. The new business is backed by a well-known brand name, training and support from the larger company and fellow franchisees.
With this established business structure, the success rate of a franchise is usually higher than an independent business. You don’t need to be an expert in all aspects of running a company because the franchise provides specific guidelines to help sell their products. Even though it’s a franchise, it’s still your business.
Still have questions about whether you should buy a small business or a franchise? For more information, please give us a call today.
As a CPA, Accredited Small Business Consultant and Advanced Certified QuickBooks ProAdvisor, we mentor small business owners to empower them with the tax, accounting, and financial knowledge and business skills to run a successful business. Allow us to evaluate your small business needs. Give us a call today at (727) 391-7373 or visit us at http://www.LStortzCPA.com and www.tampabayaccountingservices.com.