Pros and Cons of Starting a New Business, Buying an Existing Business...

When considering your business options, be sure to get feedback from a team of advisers including an accountant, a lawyer, and a financial adviser.

Starting a New Business

The pros and cons of starting a new business are listed here:

Pros:

  • For true entrepreneurs, the real goal and major appeal is in the creation of something new, not necessarily in the management aspect, so starting a new business is appealing.

Cons:

  • You need a good idea, potential customers, and knowledge of marketing, finance and management to succeed.
  • There is a high failure rate. (The Small Business Administration reports that 75 percent fail in a year and 25 percent of first-year survivors fail in the second year.)
  • Most new businesses are privately financed with the owner's money and often are undercapitalized.
  • There is a lack of formalized structure, which is good for some and bad for others. You'll have to learn to adjust to a need for greater personal drive and motivation to get going and stay active in business.
  • Because of the need to stay constantly active in order to generate business, your freedom is limited. Thus, you have to limit sick days and structure leisure time into your schedule after finishing an assignment and before prospecting for more work.
  • It is not unusual for a new business owner to work at least 60 hours, and possibly as many as 80 hours in a week, seven days a week, for the first year or so, which can create stress for yourself and your family.
  • It is not as appealing if you are sales oriented and are not as interested in creating as in selling.

 

Buying an Existing Business

Perhaps after reviewing the pros and cons of owning a business, you're thinking that you want to be self-employed but don't have an innovative idea or are not comfortable taking such a big risk. Then you could consider buying an already existing business or investing in a franchise. Both choices involve less risk, and there's less to learn the hard way, when compared with starting a new business.

The pros and cons of buying an existing business follow:

  • There is reduced risk and a better chance of getting financial backing. Banks take a more favorable view because of the existing track record: the existence of customers, staff, supplies, facility, cash flow, and so on.
  • It is more attractive to a person with more interest in selling products than in setting up an operation or a marketing system or designing products.
  • The current owner might have liabilities he or she wishes to foist off on an unsuspecting buyer. Be sure to find out why the person is selling the business before making any commitment.
  • It is not as appealing to an entrepreneur who likes to be original, creative, and innovative. This sort of business venture might not reflect enough personal vision.

 

Investing in a Franchise

The pros and cons of investing in a Franchise follow:

Pros:

  • The failure rate for a franchise business is less than 5 percent, according to the National Franchise Association.
  • Operating costs are lower (franchisors buy in large quantities and can pass the savings on to individual franchises).
  • Franchises receive plenty of business support, including advertising, accounting, hiring, and training.
  • Franchisors with better-quality franchises help with financing, legal assistance, site selection, and even management of construction.
  • It is a relatively low-cost way to learn how to run a business and a good training ground for learning to operate your own business later.

Cons:

  • You're bound by the franchise agreement. Thus, there is a loss of freedom and flexibility in operating the business. In exchange for the business support, the franchise must pay a fee, a royalty, or a percentage of the gross.
  • The success of each franchise is dependent, to a large extent, on the franchisor's business skills, determination, financial stability and honesty.

 

Becoming a Consultant

You probably have heard the term consultant many times and might have wondered what exactly they do. Consultants are expert advisers who are contracted from outside an organization to help solve problems for a fee. Those who hire consultants include large, medium, and small companies; nonprofit organizations, such as associations; government agencies; elementary, junior high, and high schools; colleges and universities; health care institutions; advertising agencies; public relations firms; and entertainment companies.

The types of work consultants are hired to do include identifying and solving problems; providing expert knowledge; generating new ideas; convincing others to accept new ideas; helping identify growth areas; teaching new methods; and exploring ways and means of keeping up with the competition.

Consultants could be experts in a particular type of business or in a cluster of professional skills. For example, a consultant might be knowledgeable in accounting, human resource management, training and development, or data processing, or he or she might have particular talent in the area of communication and writing. Whatever your chosen area of expertise, in order to succeed you need to be a proven expert with at least five years of experience and a solid network of contacts who trust you and would contract for your services when they have a project to be completed.

As a consultant, you must be comfortable with yourself and be able to continuously market or sell yourself and your skills. This requires fortitude, perseverance, and good interpersonal, negotiating, presentational, and written communication skills. Sound technical knowledge in the field of interest is also a must.

Following are the pros and cons of working as a consultant:

Pros:

  • You can enhance the development of your network. Consulting work provides you with the opportunity to get familiar with companies and vice versa, which could lead to obtaining a full-time job.

Cons:

  • You really have to hustle. YOU are the salesperson as well as the product and service. If you stop hustling, you'll be out of business.
  • You have to learn to cope with the rejection that can come from selling both yourself and your knowledge.
  • You're only as good as your last job.
  • You personally will have to get the work out on time, keep the books, pay the bills, bill customers, and hassle with delinquent accounts.
  • Unless you have a clerical worker on hand, you will not enjoy the support that you once knew as a member of a larger organization. For example, if the fax machine breaks down, you have to get it fixed yourself.
  • You might feel a sense of loss from no longer being part of a team effort.
  • You might be less secure because you are no longer backed by the prestige and title of your former corporation.

 

After reviewing the pros and cons of starting a new business, buying an existing business, investing in a franchise, and becoming a consultant, you are in a better position to judge which option best suits you. If you need more information to help you explore these options, you can contact the Small Business Administration (SBA), 409 Third Street SW; Washington, DC 20416, or call the SBA Answer Desk at (800) U-ASK-SBA (827-5722).