Saturday, 11 April 2020

Factors To Keep In Mind When Making A Decision On Whether To Build Or Buy A Business


There are two ways you can go into business. You either buy it or build it. Whether it's a franchise, sole proprietorship, or corporate these are the two extremes of how one gets into a business. Your choice should be dependent on your overall business model and strategy.

As a general rule, when you build something it takes longer for you to get to market and get market acceptance but success means higher returns both financially and otherwise - creative satisfaction, have more control and growth as an individual. When you buy it, it is relatively easy to get to market as most likely what you have has already been tested and gotten public and government approval. This may not be in your own jurisdiction but it will have met certain standards and is likely to be approved. The downside is that there is a limit to the gains and in some cases another party can control what you are able to do e.g. in the case of a franchise, thus, limiting your own creativity and innovation.

However, not everyone wants to be innovative in their business and that is okay. Great businesses have been built out of old ideas by changing the business model. For example, your passion could be to create jobs, and having proven business models that you can quickly get into the market and scale up could help you achieve this. Thus, the decision to build or buy rests totally on you. Just make sure the choice does not mean death to your business and do not be macho about it. Calculated risk and a look at real facts should guide your decision.


i) Build It
This refers to building a business from scratch - with no brand or corporate history. This can be a very difficult way to go into business and is the main way that most people get into the business because it is the cheapest and they have the freedom to build what they desire. However, to succeed, the entrepreneur has to prove their business model. It is also the most difficult way to get financing from both investors and other financiers. Most businesses started this way do not succeed and they represent the high numbers of failure rates of start-ups.


The chances of the business doing well will depend a lot on your abilities as a business leader and on whether the market embraces your business idea or not. Sometimes even after doing everything right, the market may just not be ready for what you have to offer. However, this should not discourage you as you will fail more times than you will succeed, and as long as you stick to it eventually you will succeed.


ii) Buy It
There are two ways you can buy a business; either buy an existing small business and or buy a franchise. Buying a business gives you a higher chance of succeeding.



Buying a small business

Hopefully, you will buy a successful business. If you buy a business that is not established and has no clients you will be starting from scratch just as if you were building a business for scratch. It is therefore very important to consider what you are paying for as opposed to if you were to start a similar business from ground zero. If the business is not successful, investigate the cause of failure. If you can attribute the lack of success to poor management, then you have a good chance of success if you already have expertise in the sector or can get good managers. If you do not and cannot get the right management team in place you are also likely to fail so let it go.



Franchising

A Franchise is a great opportunity to go into business if you want to start a business from scratch, have a decent amount of money to invest but have no business idea of your own and don’t want to buy one. It allows you to go into business in a way that enables you to avoid the many pitfalls that come with starting a business on your own as you plug into a business that has been proven and tested.


Franchising allows you to use the proven business model and brand for a stipulated period. The business offering the franchise is the franchise and you are then referred to as a franchisee. For the franchise, the franchise is a great alternative to building chain stores. It capitalizes on the distribution opportunities of chain outlets without directly investing in a store. For the franchisee, there are some advantages and disadvantages highlighted below. The franchise’s success depends on the success of the franchisees.


The franchise has more stake in the company and is thus more motivated to succeed.
In terms of distribution, the franchisor is a supplier who provides technical support and allows the franchisee to operate under its name and using their brand to offer services and products. The franchisee, in turn, pays them a fee for the license to use the trademark and brand.

Owning a franchise allows you to go into business for yourself, but not by yourself. It increases the chances of your business succeeding because you get:


a. An established brand that is recognized;
b. A product or service that is accepted and proven in the market;
c. Less risky business than building your own business from scratch;
d. A level of independence to run your business;
e. Training and support from the franchisor to meet established standards;
f. International, national and regional advertising;
g. Operating rules and working assistance;
h. Ongoing supervision and management;
i. Access to bulk purchasing;


All said how you get into a business will depend on the business you want to get in, your experience, and how much money you have to invest in the business. Play it safe if you have little experience and money to invest,  take more risk if you have both experience and money, and move cautiously if you have no money and but have experience. If you have no money and no experience tries your handout on another business that is less risky and complicated or if you can get a job and focus on how the leaders in your organization run the business so you learn. It will give you a sense of what keep in mind when you have the money and opportunity to start your own.

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