Welcome to Finance and Fury, the Say What Wednesday edition

John’s Question:

I thought a useful topic could be about pros and cons off starting a business and starting your own business vs buying a franchise system etc. and using a business to achieve financial freedom. 

Personally, I have been looking into options to start a business both online and franchises. I have found that starting an online business can have a very low startup and ongoing costs, which is attractive but finding something that can be worthwhile is difficult. So far I have been leaning towards buying a franchise due to the systems already in place and there service or product already being tried and tested. But obviously, this incurs a higher startup cost and ongoing franchise fees etc. 

But I am not a skilled tradesman or professional such as a website developer or marketing expert etc.  with a unique selling proposition, so therefore a franchise system is most likely a better option for me to pursue. 

 

Starting an online business or franchise

First – Check out the Episode towards the start of the year about figuring out what type of business to get into – Won’t cover that part – but say that you have an idea in mind about the type of company:

How do you start a business?

  1. What you need: idea, clients, cashflow, capital
    • What types of business have high upfront capital requirements? I.e. higher barriers to entry
  2. First key steps – what do you need to have planned out?
    • What are the most important things to have ready before starting?
    • What are the most important things to focus on in the first 6 months?
    • Problems will happen along the way – what are some major ones that you have seen, and how could these be avoided?

What if you don’t know what type of business to get into, or don’t have a selling proposition? – Purchase a Franchise

How does the purchase of a franchise work?

  1. What are the costs, and how much support is provided?
  2. Can you get financing to buy a franchise? If so, what LVRs?
  3. Have you seen any types of franchises which are the most profitable?

What are the best ways to structure each?

  • Best way to structure a franchise (Trust, company, sole-trader etc.).
    1. By yourself
    2. Partnership
  • Best way to structure a business (Trust, company, sole-trader etc.).
    1. By yourself
    2. Partnership

Which has better cashflow potentials?

  • Any type of franchises that have more consistent earnings than others?

How do the valuations work on a franchise compared to a company?

  • Which industry/types receive the best valuations?
  • How easy is it to find someone to buy your company/franchise if you are looking to step back?

Summary of pros and cons of starting a business vs buying a franchise system

  1. Pros of a Business – When would you want to start a business?
    • Does it give more control over service offering?
  2. Pros of Franchise – When would you want to buy a franchise?
    • Are they more successful than starting your own?
  3. Cons of Business – When would you not want to start a business?
    • Any horror stories you have
  4. Cons of Franchise – When would you not want to buy a franchise?
    • Any horror stories you have

Thanks for listening, 

If you want to get in contact, you can do so here

Check out the Walker Hill Blog

 

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