When considering self-employment, you have exactly the following three options available.  We will discuss each of the below options, go over some of the advantages and the disadvantages of each. It is important to understand all of your options such that you can make an informed decision.

Buy an existing company
Build or start something from scratch
Borrow a proven business model

Buy an Existing Company (non-franchised business)

This is typically the most expensive option of all of the entrepreneurial options.  Buying an existing company that is cash flowing definitely has some advantages, but there are some significant risks to consider.  There is no legal body governing the disclosure that must take place when a new owner takes over.  Our advice to a buyer, make sure to surround yourself with excellent professionals to help you asses the business.

Here is a short list of some of the advantages of buying an existing business:

• Established location, customers, suppliers, etc.
• Experience from previous owner
• Immediate cash flow
• Track record to forecast results

Here are a number of disadvantages to consider when buying an existing company:

• Potentially a higher initial cash investment
• Financial forensics required to determine value/price

One of the many perks to owning your own business, regardless of the type of business, is you have the opportunity (within all legal and ethical confines) to write many expenses against the company (phone bills, automobile expenses, internet, medical, etc.). In fact, the goal for every business owner is to show as little a profit as possible and report this low number to the IRS at the end of the year.

When an owner of a business wants to sell, the new owners usually end up paying a multiple of the profit of the company. Because the business has been showing a very low number to the IRS as far as profit for the past year(s), there is always a question as to the actual profit of the business has been. This process of determining the profitability of the company is called “recasting the financials.” It is also referred to as “forensic accounting.” Going thru the books can be a very difficult task, even for the best of CPA’s.

Because the new owner will pay a multiple of the profit, getting to an accurate profit number is extremely critical in order to not pay an inflated price for the business.

• Limited selection of businesses for sale

One of the biggest difficulties of buying an existing company, it is difficult to find a good business that is for sale. If there is a good business for sale, it typically never makes it to a business broker or the want adds in the newspaper. Typically friends, family, colleagues, customers, etc. learn that it is for sale and purchase the business before it ever makes it to the open market. The first red flag when talking with business brokers would be why is this business with a broker in the first place? Usually there is a reason a broker is selling the business.

Conclusion for the Buy option:  Buying an existing business can be a very good option, but just be careful.  Find experts and trusted advisors to help you make an informed decision.  Do not trust what the seller or especially a broker is saying, but rather verify everything for yourself.  Make sure you realize the owner trying to sell will most likely be trying to get as much as possible for their business, and could potentially be hiding critical information.

Build something from scratch

This is as entrepreneurial as it gets!  Nobody has ever done exactly what you are about to do.  You are blazing your own trail.   We also call this "The Michael Dell Syndrome" or "Bill Gates Syndrome."  Many of the wealthiest people in the world built a business from scratch.

Here is a short list of some of the advantages of building a company from scratch:

• Best Known Method to Create Wealth!
• Flexibility (concept, location, branding, etc.)
• Absolute control
• Own 100% of the upside potential

Here are a number of disadvantages to consider when building a company from scratch:

• Best Known Method to Destroy Wealth!
• You must create the concept
• Unknown duration before positive cash flow
• Many unknowns
• Low success rate

According to a recent Small Business Administration (SBA), most startup businesses fail.  The percentages are 80% of startup businesses fail within the first three years, and an additional 80% of startup businesses fail in the 2nd three years.

Conclusion for the Build option:  Building something from scratch can be a very lucrative method of building wealth, but keep in mind that most startup businesses fail.  The SBA realizes this as well, making it extremely difficult to obtain funding for startup ventures.  Often once you get funding, there are typically personal guarantees tied to the loan.  Lack of capital, and lack of marketing expertise are two of the most common reasons startup businesses fail.  If you have that great idea burning inside you and want to give it a go, do your best to plan for the unexpected, budget for significantly more than expected, and stay focused on what the market wants and needs.

Borrow

Many business format types fall within this Borrow category, including Franchising.  Franchising is not going to be discussed here, as the focus of the section is alternatives to franchising.  Here is a list of some the types:

• Business Opportunities (aka Biz Opps)

• Joint Ventures (JVs)

• Licensing Programs

• Multi Level / Network Marketing (MLM's)

• Wholesale Distributorship

Each one of the above types has unique attributes, some positive and some negative.  Something to consider when entering into any of the above relationships, realize that there are no governing bodies to protect the buyer.  Often, the reason Biz Opps are created is because they wouldn't pass the FTC scrutiny required to become a franchise.  Also, the barriers to entry for many of the types are very low.  A question one needs to ask when considering a job, a business, or a product is what are the barriers to entry?  If there are no barriers to entry, plan on that job, that business, or that product being a commodity that everyone will be competing for.

Here is a short list of some of the advantages to consider:

• Product already developed
• Ongoing advice / Best practice sharing with owners
• Potentially have some brand recognition

Here are a number of disadvantages to consider:

• Difficult to perform a thorough due diligence - not required to disclose list of outlets
• No Guarantees if it is a viable business model - Buyer Beware!
• Availability for research
• No guarantees of success
• Higher operating costs (potentially)

Conclusion for the Borrow option:  Borrowing a proven model is typically the safest route to go.  Duplicating what someone else has already done successfully will help stack the deck in your favor.  The major problem across the board with all of the above types has to do with disclosure.  None of the business models are legally required to disclose much of anything.  This, in contrast to a franchise where the Federal Trade Commission regulates heavily, is a significant difference.  Our recommendation is to take an honest self-evaluation of yourself, and surround yourself with experts where you are not strong.