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Should I start or buy a business?

Statistics show that something like 4 out of 5 new businesses fail within the first two years. Not all of these people lose money - a lot of them just decide that running their own business is not for them or they do not obtain enough business to make it worth continuing.

So even if you have the most original idea for starting a new business you should be highly sceptical about starting up a new enterprise. You should get professional advice on the hurdles you face and the sources of finance available. You may also need further training and you will certainly need support from your family and friends.

Starting a New Business From Scratch

It can seem very exciting starting your own business from scratch. You have complete control of everything and any profits you make will be yours to keep.

The downside is that you may start with zero customers and you'll have to do everything yourself (at least initially) and you probably won't have a regular source of income to start with.

When you're starting a business based on what you're currently doing for a job, you may already have contacts / clients, but be careful of any non-compete clause in your contract of employment or contract for services.

If you're thinking of starting a totally new business and you'd like some ideas, then see: latest home based business ideas and best rated home based businesses.

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You'll initially need to produce a business plan, open a bank account (in the name of the business) and find some premises for your business (unless you are planning to work from home).

What questions must you ask yourself:

  • How much time are you willing to devote to the business? And will this be enough?
  • How risky is this business venture? Are you prepared to live with this risk?
  • How many competitors will you have locally (nationally / internationally)?
  • Do you have all the experience needed to start up and then run the business?
  • What training will you need and how much will this cost you?
  • How will you finance the set up and initial running costs of the business? (Your own savings? Money from your relations? A bank loan?)
  • If you need premises are these available locally and how much will they cost?
  • How much will it cost to fit out the new premises?
  • What will be the cost of stock / raw materials / equipment / vehicles?
  • Will you need to take on staff and how much will this cost you?
  • What are your likely costs, turnover and profits over the next 1, 5 and 10 years? (You'll need to produce a business plan.)

Buying a Franchise

When you buy a franchise you should be buying into an established and successful brand, where you will receive help and training from the owner of the franchise.

A franchise can be an excellent way to start a business, as they should already have a proven business model, meaning there should be a lower chance of you failing.

Make sure that you thoroughly check out the owner of the franchise. Here are some questions you might ask:

  • When did they start the original business?
  • Where did they start the original business?
  • How big a geographic area did they cover?
  • How many franchises will they be offering in total?
  • How big an area does your franchise cover? (Geographic area, population, income levels of population, etc)
  • How much will you initially have to pay for the franchise?
  • How much will you have to pay annually to the franchise owner?
  • How much will any fitting out costs be? (e.g. shop fitting, equipment, vehicles, etc)
  • What are the typical costs, turnover and profits?
  • How are the best and the worst franchisees doing and why are they doing so well / badly?
  • How can I finance the purchase and running costs of a franchise? (Will this come from your savings? From family? A personal / business loan? Etc.)

Buying an Existing Business

When you buy an existing business, you can tap into the existing client base.

Here are a few questions to get you started:

  • What are the costs, turnover and profits?
  • How many customers does the business have each year?
  • How many are repeat customers?
  • What percentage of the total turnover does the largest customer represent? (If they account for a very large percentage of the overall business turnover, then losing them could make the business unprofitable.)
  • What is their relationship with suppliers?
  • What debts does the business have? (Trade debts, bank loans, loans from the directors, etc.)
  • What is their current 1, 5 and 10 year business plan?
  • Is the market for this business growing?
  • Who are their local (or national / international) competitors?
  • Are there any disruptive competitors that may destroy the business?

You should seek financial advice to ensure that you are getting a good deal. You should get a qualified accountant to go over their books to check that everything is above board.

Running a credit check on the company through a credit check agency would also be a good idea as would obtaining any accounts filed with Companies House (a legal requirement for limited companies in the UK).

If no accounts have been filed, or they do not tally with the books, or the accountant you have hired is wary of the company, it would probably be advisable not to proceed with the purchase.

Obtaining legal advice from a solicitor on drawing up a contract is also a sensible option.

Starting a Business Articles:

Need to Improve Your CV to Get Clients or a Bank Loan?

Depending on the type of business you are starting and whether you need finance, you may need to develop a CV, either to go with your business plan when applying for a bank loan or to send to a potential client if you are seeking a contract that is based on your previous work experience.

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