BUSINESS TYPES

Chose The Right Type For You

There are many different types of businesses and each one has its share of advantages and disadvantages. In this section we will examine the pros and cons of each type.

STARTING A NEW BUSINESS

Advantages

You're not hampered by the previous image or equipment of an existing business.
You can choose your own location, name and logo, and build your own business relationships.
You can explore new markets and directions.

Disadvantages

You have no existing customer base to build on.
You’re taking a bigger risk than if you were buying an existing business.
Because your business has no track record, it will be harder to find financing.

BUYING AN EXISTING BUSINESS

Advantages

You gain an established customer base, location and supplier relationships.
The business is a known entity with a proven formula and name recognition.
You can review the business’ records before buying to make sure it’s profitable.
Since the business has a track record, it may be easier to obtain financing.

Disadvantages

Hidden problems with the business could come back to haunt you -- such as debts, loans or misrepresentations about profitability.
The business has a reputation, but is it a good one?
The business’ inventory could be obsolete; its assets and/or goodwill could be inflated.
Employees may be loyal to the former owner, causing management issues.
There’s no guarantee the business’ success will continue under your ownership.

BUYING A FRANCHISE

Advantages

As a franchise you become part of a system with a well-known image and proven products or services.
You have the marketing and sales power of the franchisor behind you.
You get training and guidance from the franchisor.
You’re part of a network and can turn to other franchisees for help.

Disadvantages

You don’t have as much freedom as an independent business owner.
You must pay ongoing royalties and other fees.
You must sign a binding contract that limits your ability to exit the business.
The franchisor’s problems -- whether financial, image or otherwise -- are your problems, too.

HOME-BASED BUSINESS

Advantages

Working from home is convenient.
You save money on commuting, dry cleaning, lunches out and other daily expenses.
You have a flexible schedule and can work when you want.
You could gain tax advantages since you could deduct the portion of your home used for business.

Disadvantages

Zoning or deed restrictions may prohibit home-based businesses.
Working from home can be isolating and lonely.
As a home-based business, you will have more difficulty finding financing.
Distractions from family or neighbors may make it hard to work.
Home-based businesses are often subject to IRS scrutiny.

ONLINE BUSINESS

Advantages

Startup costs are lower than with a brick-and-mortar business.
You can do business with customers all over the country or world.
Customers appreciate the convenience of accessing your business 24/7.
You have the flexibility to do business from anywhere, anytime.

Disadvantages

Low conversion rates -- on average, fewer than 5 percent of visitors to an e-commerce site make purchases.
Low barriers to entry for an online business means there is more competition.
Visitors have high expectations for online businesses and less tolerance for problems.
Being unable to touch merchandise can make customers less likely to buy.