Starting an online business or franchise

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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
    1. 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?
    1. What are the most important things to have ready before starting?
    2. What are the most important things to focus on in the first 6 months?
    3. 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?

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

Which has better cashflow potentials?

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

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

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

Thanks for listening,

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