Addressing the options for entrepreneurship through starting up a business, buying a business, or buying a franchise.
In our industry of business brokerage, we meet every type of business owner you can imagine. There are business owners who built their company from scratch 20 years ago and have been able to scale it into an industry leading business. We’ve met business owners who have built small business empires through multiple franchise locations across the state, and even still owners who turned a side project into a full blown company. As you can tell, there’s no one way to become an owner and we’ve outlined the options below so you can begin your own entrepreneurship journey.
Why do you want to be a business owner?
Being a successful business owner requires capital investment, a lot of time and a considerable amount of effort. And despite the appeal of the “American Dream” and getting to be your own boss, the reality is that not every person will be a successful business owner even if the dream is there. Following are some questions you can ask yourself to begin to determine if owning a business will work for you.
- Have you always enjoyed entrepreneurial pursuits? If even as a child you felt the pull to make money on your own terms through car washes, babysitting, and lemonade stands, than that can point to your commitment moving forward.
- Are you good at multitasking? Business owners where a lot of hats and manage a variety of tasks including strategy, accounting, hiring and customer service.
- How do you feel about money? Owning a business requires a big cash injection and additional expenses can quickly add up. Having a stable and non-emotional relationship with money will go along way within your business.
- Can you handle the unknown? Owning a business will have its ups and downs and deals with a high level of uncertainty - are you prepared to feel uncomfortable sometimes?
Another question to consider is, “What are you hoping to get out of business ownership?” There are many benefits to owning a business, but like everything in life there are some drawbacks too. Owning a business is a great way to take control of your financial future. Consider the world’s wealthiest people - most of them are self-made, business owners like Bill Gates or Jeff Bezos. There is no real earnings cap as a business owner, because the compensation goes back to you.
Another benefit is the concept of job stability. With a business that you own, you’re in control of your compensation structure, the hours you work, and get to decide when you sell the business. Owning a company also affords you a more flexible lifestyle, especially when you build middle management into your company so it can run without you actually being there.
These benefits do come with drawbacks. At the end of the day the business owner is the one who is responsible for everything - they have to put out fires, and fill in when an employee is sick. This can lead to burnout, even when your business allows you to pursue your passion.
How do you legally start a business?
There are three main aspects of legally starting a business:
- Corporate Structure
- Tax Identification Numbers, and
- Entity Registration.
The corporate structure you choose can influence everything in your business from day-to-day operations to business taxes (and personal) and the level of risk you face personally as the owner. When considering your corporate structure there are quite a few options, so you will need to weigh the legal protections with the benefits that are right for you and your business from these structure options - Sole Proprietorship, Partnership, Limited Liability Company, C Corporation, S Corporation, B Corporation, and Non Profit Corporation.
To legally set up your company you will also need two tax identification numbers, your federal tax identification number or employee identification number (EIN), and your state tax identification number. These tax id numbers are required to complete a number of business operations. The EIN number is used to pay federal taxes, hire employees, open a bank account, and to apply for licenses and permits. The state id is used to pay state taxes, and to protect against identity theft for sole proprietorships.
The final piece to setting up your business is to register your entity name, your doing business as name (DBA), your domain name, and file for any intellectual property, trademarks, patents, or copyrights. Aside from registering your domain name with companies like GoDaddy, all of these items can be completed through your local and federal government.
What are the options for entrepreneurship?
Option 1: Starting a Business. There are pros and cons to starting a business that, depending on your goals as an owner, will play out differently. With a startup you get the opportunity to pursue a business you’re passionate about or solve a problem. A startup also offers a lot of opportunity for control from choosing the corporate structure to planning the entire business plan from scratch. On the flip side, starting up a business is a big capital investment. There are a lot of start-up costs and there is no guarantee for success. The failure rate of a startup is 50% within the first four years, and is often because of business incompetence, lack of management experience, and neglect. But there is another option to starting a business and that is buying an existing business, which can address a few of the disadvantages that come into play with a startup company.
Option 2: Buying an Existing Business. A business acquisition is a great option to own a business while also limiting the risk involved. An established business has already been set up from a legal standpoint, it has cash flow, a reputation, and a proven business model. The business will have employees, vendors, and a customer base which eliminates a lot of time intensive processes like hiring. Another great benefit of buying a company that a startup lacks is ease of financing. Because the business has history and has been able to prove itself, it will be easier to acquire capital to purchase the company as well as fund cash injections later on. The main disadvantage to purchasing a business is the limited control over the setup and operation of the company. While there will always be room to make changes later on, immediately after acquisition it is best to limit changes made.
Option 3: Buying a Franchise. Buying a franchise is a similar opportunity to buying a business with a few key differences. Franchisors offer support to franchise owners in the form of training, education, and advertising to name a few. If this is your first business, a franchise brand can be a great way to start because of the support resources and guidance available to franchisees. Franchise companies have higher success rates than startups because of their already proven business model, brand recognition, and the training and education resources in place. Because of this success, lenders and finance partners are much more willing to extend a loan to a franchise buyer than to an unknown startup concept. Similar to buying an established business, buying a franchise does limit the control you have over the business, with one caveat. All franchises are different, and their business model, the initial franchise fee and all other investments are outlined in the franchise disclosure document or franchise agreement which will explain the level of control you will have over your business.
Who can I talk to about becoming a business owner?
We’ve outlined the options for becoming a business owner, but you have questions and you need more resources. Whether you’re starting up or thinking of buying a business or franchise, there are a lot of resources. Local chambers of commerce, like the Denver Metro Chamber of Commerce, offer workshops about entrepreneurship and other training opportunities. There is also a network of Small Business Development Centers across the US that can offer support through workshops, conferences, and local business consultants. Finally, you can speak to a business broker who will be very knowledgeable about your state’s small business landscape, has access to local professionals, business listings, and franchise opportunities and can help you weigh your ownership goals against the ownership options available.
Transworld is passionate about small business owners, and we want you to become a successful business owner in your own right. Please visit our website for more information or schedule a free consultation below.
Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!
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