We are frequently asked which is better: to register your own business and “raise” it from zero point or to purchase one already operating?

There is no definite answer. Both the options have their advantages and drawbacks.

The success of your business in America depends upon two interconnected processes - marketing and management. Hundreds of books have been written on the subject, and we are not going to retell their content. We are not going to prove the obvious - poor initial marketing as the basic reason for the collapse of the majority of new enterprises. Say, the most outstanding management will not save a tie stand in a desert. And making a deal that all the bars and restaurants around will allow customers in only in ties is not possible in America.

You have four options of setting up a business in America:

Purchase an existing business

Advantages:

• The business is already operating. You do not need an organization period that brings only expenses and no income. And it often takes longer than planned due to different objective and subjective reasons.
• The business is occupying a certain place in the market. There are popular goods and their consumers (customers).
• More or less established staff is employed in the company. You do not need to spend money and time on the search for staff and their training.

Drawbacks:

• As a rule when purchasing a business, you immediately have to invest a considerably big amount.
• Almost always when purchasing a business, unforeseen expenses exceeding the estimate arise. On paper everything is as it is known, smooth. But the ravines - different types of repairs, equipment modernization, employment and training of additional staff etc.
• Frequently, it is not only objective, but subjective reasons as well due to which formerly successful businesses come to decline. For example: near a business that was once popular another one was set up, a bigger and better one, competing with which is difficult or impossible. There was a case in our practice when a murder took place in quite a popular restaurant, the establishment fell in disrepute, and local people just stopped coming there. Or another case, when a proprietor of a very successful business died, and the director, former best friend of the late, failed to find understanding with the heirs and quit taking almost all the staff and customers with him. Only bare walls remained of a business once successful with document tracing how successful the business was.

Purchase a franchise

Advantages:

• The business will work and bring income at once.
• Smaller initial capital is required for a franchise.
• The proprietors of the franchise will allow preferential terms for you, will provide part of required equipment on installment basis, will help to get a loan in a bank.
• The franchise requires less time of the proprietor.

Drawbacks:

• Franchise is always a scheduled enterprise. Any initiative is subjected to punishment. You can not change the assortment, print your own menu, and purchase something from the suppliers which were not indicated to you. All your staff, especially management, have to pass an obligatory, often rather long course of training, etc. You are even not allowed to hang the curtains of a different color and purchase napkins from a non-prescribed supplier.
• Almost always when purchasing a business, unforeseen expenses exceeding the estimate arise. On paper everything is, as it is known, smooth. But the ravines - different types of repairs, equipment modernization, employment and training of additional staff etc.
• If the franchise becomes unpopular for a reason or two, it entails you automatically. You will always have to remit a share of profit to the franchise and to make fixed payments. Those payments may turn out to be impossible for you.

Enter an existing business as a partner

Advantages:

• The Business is already operating. You do not need the organization period. You have a partner who will help you to avoid the mistakes of initial period.
• The Business is already occupying a certain place in the market. As a rule, the business proprietor takes a partner in case when the business is expanding (the company sets up a new store, procures or moves to a new building) or the proprietor does not cope with the increasing flow of orders or selection of services.
• An established staff is employed in the company. Links and contacts with suppliers and customers have been established. But you will be able to add a new stream into this business.

Drawbacks:

• You might “fail to get on” with your new partners. Your views in respect of development and expansion of business may be different from those of your partners’.
• Business might have some old problems which will be more difficult for you to rectify as you will have to prove the necessity of those steps to your partner.
• You might have problems with the staff. For example, a manager working in a bad way may be a “family friend” or a relative of your partner’s. The process of getting rid of such “employees” may be painful and will hardly contribute to your relations with your new partner.

Set-up your own company - Corporation or LLC.

Advantages:

• It will be your business from the very beginning. In case of correct business positioning, marketing, staff selection, the efficiency of your investment may be the highest of all the previous options.
• You will not have to deal with the problems of a purchased business, for example old equipment, conflicts between the employees, problems with the customers, outdated software, location of office inconvenient for you, etc. You will not have to pass a long and expensive training (franchise), or to employ a person who might not suite you much, but has already passed all those trainings.

Drawbacks:

• You need a considerable organizational period. Of course, we will help you to avoid the mistakes of initial period, but half a year to a year after registration will pass until your business starts working at all. It is a familiar picture for those who have raised business from “zero point”.
• The first year after actual beginning of business activity (not registration) will be disadvantageous. Only 11% of companies in the USA become profitable within the first year. The second year is decisive. The company has to become profitable and to find confident feet in business. And only in the 3^rd year of business activity (the 4^th from the moment of registration) you will see the profits and return of your capital investment. Are you patient enough to wait for all those years?

You have to decide first of all for yourself, which option is the most acceptable for you.

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