A: iii) Starting Up vs Purchasing

i) New businesses start up. 
This has a considerably higher risk of failure than other concepts, but does mean that you are not paying someone else a premium to purchase their business.  You will need to have confidence in your ability to achieve all that is required and to have the perseverance, vision, staying power, flexibility, finance and people skills to sustain you and your staff/ suppliers, until you become profitable. 

A disadvantage can be that you will have to find premises, the customers, and purchase all the equipment to start the business, and at that you will be responsible for every aspect, which can at times seem to be formidable.

The more experience you have in your chosen field, combined with detailed research into who your customers are going to be, how you reach them, satisfy their requirements, who, what and how  any competitors may affect proposals, the more likely you are to be successful in building a sound, successful business!

Future success is primarily down to you, and how well you have planned and prepared for it.  It can be all the more rewarding for it, because you have been responsible for achieving it, but at times it can seem daunting.

Analyse why you want to work for yourself:

• Have you the ability to motivate yourself and to be practical, efficient, confident, decisive and organised even when you are tired and/or when things are not going to plan?
  
• Are you prepared to put in very long hours, to achieve your goal?
  
• Are you prepared to accept the potential disruption that may affect your family, friends, sports, social and leisure times?
  
• Have you got friends or family who can be there to help and support you?
  
• Do you mind having to forgo holidays/weekends/days off, until successful?

Most businesses do not make enormous profits for their owners, and it can take some time even to reach profitability.  Can you afford to support yourself (and family) until your business becomes profitable?

ii) Purchase an existing business
You are buying a business with a track record, existing customers, and the potential for you to increase/decrease your customer base. 

It is often possible to purchase an existing business that is operated poorly or inefficiently, and therefore operating under its potential/profit.   You will need to discover the reasons why it is in this state.  It may be due to illness, someone waiting to retire, lack of capital to invest, poor management, or just plain exhaustion or inability on the part of the current owner).  This can be a very effective way of getting to operate a business, and providing you with a customer base and equipped premises at a known reasonable cost (providing you do not overpay!).  You will need to be confident that you have the ability to put in place the changes that are necessary for the business to become successful.   

It is important to check the accuracy of the accounts, and not to accept anything at face value. Is there a genuine reason for the sale; are any competitors moving into the   same area/market etc?  Ensure that the seller has a clause preventing him/her from opening/managing a similar business within a reasonable radius, to protect the customer base you are purchasing.

You will need to break down the cost of any purchase into the following four broad categories, and check that you are not overpaying for the value on any of these. Use an independent valuer if in doubt. There are also tax implications and efficiencies for ensuring that the valuations are correct, and in your favour.  Where there is a lot of stock, it can be beneficial to use the services of a professional stock taker. Not only just for the takeover, but on a regular basis, so that you can identify your profit/loss situation on an ongoing basis, but also identify any losses due to theft.

The categories are:-

1. Stock. The goods to be sold: Are these in date/ Damaged/ Saleable?  (Fashions can change rapidly).  Is the price realistic? 
2. Fixtures and Fittings
3. Machinery and Equipment- These need to be valued realistically, and some equipment rapidly looses value the moment it is bought.  Has the equipment been regularly maintained/serviced? Get independent valuations if in any doubt.
4. Goodwill. This is an area which is subject to agreement and negotiation.  It is based on a measure of the actual and potential profit of the business, its reputation, its quality of its staff, the reputation, ability and charisma of its previous owner/s, Valuers/ Stocktakers/ Accountants.

iii). Purchase a franchise. 
This can be an easier way to get into business, but still requires careful investigation.  You can benefit from national advertising, name recognition training, support etc, but sometimes have to pay a significant proportion of your turnover to the franchise company. 

Some franchises are poor, and it is important to investigate the history and background of the parent company, how many outlets in this country, how long have they been trading, what is their turnover / profit ratio etc. What training will they provide you etc? 

There will also be limits to the actions that you may take independently as the owner, and the risk of adverse publicity from another similar franchise, from the company’s products/purchasing/policies etc, over which you have no control.