While there is limited evidence on the exact reasons for small business failures, we know that business failures are highest in the first two years of the start-up phrase, with the probability of failure reducing after this period.
Survival rates improve over time when a business has:
- Found a market for its products or services;
- Built an established customer base;
- Developed relationships with suppliers and consumers;
- Put in place core day to day business processes;
- Grown goodwill and market reputation;
- Established profitability and cash flows.
Buying a franchise offers the opportunity to buy into a proven systems that can address some of the risks associated with getting into your own business.
So what are the pros and cons of buying an established franchise with a trading history versus starting from a brand new site?
The following are some of the key considerations:
|Existing Business||New Site|
|Likely higher upfront cost to pay for “goodwill”||Lower start-up cost only for fit out and franchise fee|
|Systems implemented||Systems to be developed|
|Trading history||No trading history|
|Sales pipeline||Sales pipeline to be developed|
|Profitability history||Profitability unknown|
|Employees in place||Recruitment of employees|
|Immediate cashflow||No immediate cashflow|
|Established suppliers||Untested suppliers|
|Existing lease/premise||New lease/premise|
It is strongly recommended that you do not make a decision about starting a business until you have investigated the market, and find out if there are existing businesses available within your areas of interest. You then have the option to jump in to a profitable business and leverage the hard work already undertaken by someone else.
Another benefit from considering an existing franchise is the insight that you can get from looking at the history and the resale value of an established franchise before making the commitment to a greenfield site.
Explore established franchises for sale below: