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Closed, Existing Vs Franchise

I want to open a business but I don't know if it would be better to buy a closed business and start from scratch, an existing one or a Franchise. I like the idea of things already in existence but I am not sure if this is a good move. Could someone give me an idea of the right way to go?

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Answers (6)
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Corporate Financiers
President

Give me a call. As a former banker (Merrill Lynch), I have financed many restaurants (BW's, Denny's, Perkin's, QSR's, etc) and thus have experience from a banker's perspective. I now arrange financing for small and mid-size businesses. No fee, no obligation. Todd 312-488-3505

Jul 31, 2010
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Corporate Financiers
President

It depends on your situation, including prior experience, risk tolerance and financing wherewithal. A startup requires an individual with capable experience to turnaround a previously closed business plus it's more difficult to obtain financing (thus more capital from owner). The risk is also greater. The benefit is that it is cheaper since you are not paying a premium for an existing, stabilized business. Buying a business often requires a premium though the risk is lower assuming the client base remains. If you buy a business, you can also require that the owner stays on board for "x" days to consult. A franchise is generally easier to obtain financing, offers operational guidance (thus less risk) though you have to pay for such in terms of a royalty. A successful franchise is worth more in a sale. If no prior experience, though you meet the franchisors requirements this may be the best way to go. I am a prior fortune 100 banker (merrill lynch) with an accounting/business background. In addition to arranging financing for small and mid-size businesses I also offer insight. My service is free to the borrower and is no obligation - Todd 312-488-3505

Jul 31, 2010
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Corporate Financiers
President

It depends on the individual's situation, including prior experience, risk tolerance and financing wherewithal. Starting from scratch requires an individual with strong operational experience to essentially turnaround a previously closed business plus it's more difficult to obtain financing (thus more capital from owner). The risk is also greater. The benefit is that it is cheaper since you are not paying a premium for an existing, stabilized business. Buying a business often requires a premium though the risk is lower assuming the client base remains. If you buy a business, you can also require that the owner or general manager equivalent stays on board for "x" days to consult though the transition. A franchise is generally easier to obtain financing, offers operational guidance (thus less risk) though you have to pay for such in terms of a royalty. A successful franchise will sell for more than a equally successful non-franchise business. If you have no prior experience, though you meet a certain franchisors requirements this may be the best way to go. I am a prior fortune 100 banker (merrill lynch) with an accounting/business background from the U. of Michigan and Northwestern U. In addition to arranging financing for small and mid-size businesses I also offer insight (projections, loan structure, cap structure, etc.). My service is free to the borrower and is no obligation - all I ask is for that person to be serious about starting/running a business. Todd 312-488-3505

Jul 31, 2010
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Durgan and Associate Business Brokers
Camden County, MO

Hello from John York with Durgan & Associates, First let me point out my background. I currently represent over 180 million dollars in business listings. I work with Hu-Hot Mongolian Grill americas 2nd fastest growing small restaurant franchise. I think you should look at Chickies, a one off corporate restaurant that I represent. It is located at Lake of the Ozarks, MO. This operation can be purchased for $ 500,000 including the marketing rights to the franchise. It is a great running and looking business. Now over one year old. The owner / developer has health issues and is forced to let go of his life long dream. I have the first one sold for $ 500,000 if you owner finance it and I have two other investors wanting the next two franchise stores. You could be off and running developing your own chain of restaurants, or you could buy the first one and enjoy the ownership and let me develop the franchise chain for you. John York 636 497 5597

Jul 31, 2010
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Corporate Financiers
President

It depends on your situation, including financing wherewithal and risk tolerance. Generally speaking, to start a business from scratch is cheaper than paying a premium for an existing, stabilized company though the risk is higher (no client base) and financing is often more difficult (unless you are well capitalized individually). A franchise is easier to obtain financing and also offers operational guidance though you will have to pay a royalty for such. Personally, I would go the franchise route unless I had prior experience owning and directly operating a company (the odds of success would be better stacked in your favor in this case).

I was am a banker at a fortune 100 firm (Merrill Lynch) for more than a decade plus have an accounting/business background from the U. of Michigan and Northwestern U. I arrange financing for small and mid-size businesses which comes with the added benefit of insight (projections, capital structure, loan structure, etc.). My service is free to the borrower and comes with no obligation (I just request that I deal with someone who is serious about starting/running their own business).

Todd
312-488-3505

Jul 30, 2010
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The BAF Group LLC
MD

It depends on a huge number of factors. Buying a closed business can be risky, because the closure can cause a blight on the new business. Starting from scratch depends upon whether it is more expensive to start it as just that - a startup - or whether it is financially more beneficial to buy one at a reasonable price, with a good reputation and positive cash flow. To make these kinds of decisions, you need to know all about the costs of starting up from scratch, what business is closed and why it was closed, whether it makes sense to start one up at a different place as a result of the reason the other one was closed, and what the cost and current cash flow of the going business you think you might want to buy.

What I am saying to you is that answering these questions in a "what if" kind of scenario is not really in your best interests. You need specifics, in order to get that kind of meaningful opinion.

You need to start by writing a Business Plan for what you want to do, then measuring the startup against all of the alternatives available to you. Anyone that gives you a fast, pat answer is doing you a disservice.

Jul 30, 2010

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