Buying an Existing Business: Franchise or Non-Franchise?

Franchise UnitsIf you are long time readers, you might noticed that I once invested in franchise units. However, I have divested today.

I will always looking for lucrative opportunities and businesses for sale, because I divested not because my previous businesses are bad businesses. Thanks to the recession and economic crisis, customers’ buying power is all-time low, which have a direct impact to my franchise units that are in business service and retailing.

My mistake, at that time, is starting out from scratch without proper knowledge, thinking that purchasing a franchise unit can get you right into entrepreneurship, fast. Although a franchise unit can help your starting-up process with proven business concept and ready-to-go infrastructure, all still coming back to you – the owner.

Wrong mindset, wrong timing and wrong decision – Purchasing a franchise unit that yet to start in a location is just the same as other type of business startups – moderately high risk of failure without proper experience and resources.

I do see inexperienced franchisees succeed, but it took more than simply a right decision at a right time to ace in franchising. I can’t simply throw hundreds of thousands of dollar for trial-and-error. Not anymore :)

My recommendation: Buy an existing business

Learning from my past experience, I only have one recommendation: Unless you are a startup addict or an experienced serial entrepreneur yourself, I suggest you to look for businesses for sale by owner.

Here are some advantages in buying an existing business:

  • Like what is mentioned in this article, buying an existing business save your invaluable time, energy and money.
  • You cut startup process, which include high risk of failure and a period of negative cash flow.
  • You have a proven, profitable, business that is well-fitted and well-accepted by the community it resides in – this is very important!

Just like everything in life, for every good thing in life, there will also be a bad thing related to it. There are some disadvantages, too, in buying an existing business:

  • You have to be able to blend into the culture (or mix yours with the existing) formed in the business – Yes, you could change the culture, but this is resource-intensive and might damage the business’ overall performance.
  • There are chances where previously unsatisfied customers are keep attacking your business, even though there is a change in management.
  • The business reputation and hidden liabilities are following you, the new owner – Just make sure you settle every detail with the previous owner before acquiring the business.

Franchise or non-franchise?

If you are ready to splash more cash into a franchise unit acquisition and ready to work with franchisor whatever it takes, then I highly suggest you to buy an established franchise unit.

However, if you are not ready to follow the franchise’s set of rules, then you should avoid franchise and franchising at all cost :)

The key in knowing whether you should acquire an established franchise unit or not is through learning and researching what franchises offer you and what it takes to run a franchise unit.

One final advice: Running a franchise unit involves building a relationship in a family-like environment (and often parents-to-children type of relationship) with your franchisor. If you are not ready to take such responsibility, I suggest you to go for non-franchise businesses.

Ivan Widjaya
Buying an existing business
Image by Mom the Barbarian.