Whether to start, buy or franchise

There are three basic ways of getting into business.

1. Starting up

A good business idea

A good business idea could be an invention, a new product or service, or an original idea or solution to an everyday problem. It might also be:

a gap in the market that you can fill
a business related to the work you do already
an interest or hobby that you can turn into a business

Whatever your idea is, you need to be sure that it fits with your needs as an individual, as well as being a viable business proposition.

Questions to ask yourself

What is it that you will personally bring to the business in terms of relevant experience and expertise?
Is there a market - a need for the idea, and customers who will pay for it?
How big is the market, and how will you reach it?
Who will be your main competitors?
What is special about your idea, making it different from similar products or services already out there?
How will you fund your idea?
What might go wrong?

For information on turning your answers to these questions into key documents for your business, see our guidance on how to prepare a business plan.

Other sources of help

You can get professional help, sometimes free from your local enterprise agency or regular professional.
Discuss your ideas with friends and colleagues, particularly those who know about the business.

2. Buying an existing business

Buying an established business with staff, systems and customers in place can offer
you a quick route into the business world. But you do need to find out why the business is being sold.

Advantages and disadvantages of buying an existing business

If you get it right, there can be many good reasons why buying an existing business could be the right move for you. Remember though, that you will be taking on the legacy of the previous owner of the business, and need to be aware of every aspect of the business you're about to buy.

Advantages

Some of the ground work will already have been done in getting the business up and running.
It may be easier for you to get finance as the business will have a proven track record.
A market for the product or service will have already been demonstrated.
There may be established customers, a reliable income, a reputation to capitalise and build on, and a useful network of contacts.
A business plan and marketing method should already be in place.
Existing employees should have experience you can draw on.
Many of the problems will have been discovered and solved already.

Disadvantages

You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors, surveyors, accountants etc.
If the business has been neglected you may need to invest quite a bit more on top of the purchase price to give it the best chance of success.
You will need to honour or renegotiate any outstanding contracts the previous owner leaves in place.
You also need to consider why the current owner is selling up.
Think about the feelings of current staff - it's possible they may not be happy with a new boss, or the business might have been run badly and staff morale may be low.

When you buy a business, you’ll normally have to pay good will for it. It’s important to understand how the good will is calculated and check with your accountant if its normal for your type of business.

Before you buy any business, make sure you get good legal and accounting advice, and talk to your local Bancoii CRM.

Step-by-step: how to buy a business
An organised approach will help you find and acquire the right business.

1 Get professional advice

Professional help is invaluable as you go through the negotiation, valuation and purchase process. Choose a good lawyer and accountant. You also can count on bancoii professionals to help you.

2 Research

Research the sector you're interested in, including the best time to buy, and short list two or three businesses.

3 Initial viewing and valuation

Be discreet - the owner may not want staff to know they are selling, but be thorough and record key findings.

4 Arrange finance

Lenders generally require:

details of the business/sales particulars
accounts for the last three years
financial projections - if no accounts are available
details of your personal assets and liabilities

There are several possible sources of finance you could consider. For example, financing for friends and family, bank loans or equity finance. In the last 2 cases, Bancoii can help.

5 Make a formal offer

If you make your initial offer by phone, follow this up in writing. Head your letter subject to contract and include this phrase in all written communication.

6 Negotiation

Before completing the sale, try to negotiate an overlap period so you have time to become familiar with the business before taking over. Record all the main points agreed.

You and your solicitor need to verify the information you have based your offer on. Make sure a business is worth buying through due diligence.

If you're buying premises, you may want to arrange an independent survey and valuation, even if a lender is also carrying out their own survey and valuation at your expense. You can find a surveyor who specialises in commercial property on a business property web site.

7 Completion

Even after you reach an agreement on the price and terms of sale, the deal could still fall through. You have to meet certain conditions of sale to complete, including:

verification of financial statements
transfer of leases
transfer of contracts/licences
transfer of finance

Looking after existing employees

There are regulations that govern what happens to employees when someone new takes over a business.
These apply to all employees when a business is transferred as a going concern, meaning employees automatically start working for the new owner under the same terms and conditions.

Employment tribunal decisions

When you buy an existing business, you might decide you need to employ fewer staff. But be careful about making any changes, as an employee might take a case to an employment tribunal for unfair dismissal or unfair selection for redundancy. It's best to consult a lawyer before making any such changes.

Inform and consult employees

If you do want to discuss reducing employee numbers or reorganising staff, it's a good idea to do this once you've completed the due diligence period, but before you take over the business. As the new employer you should inform and consult all employees - including employee representatives - who may be affected.

Pensions

As their new employer, you do not have to take over rights and obligations relating to employees' occupational pension schemes put in place by the previous employer. However, if you don't provide comparable pensions arrangements, you could the or ethically face a claim for unfair dismissal.

3. Buying a franchise

Introduction

Taking on a franchise is an option worth considering for anyone who wants to run a business but doesn't have a specific business idea or prefers the security provided by an established concept.

The right franchise can give you a head start. Instead of setting up a business from scratch, you use a proven business idea. Typically, you trade under the brand name of the business offering you the franchise, and they also give you help and support.

Successful franchises have a much lower failure rate than completely new businesses. How ever, you will still need to work hard to make the franchise a success and you may have to sacrifice some of your own business ideas to fit in with the franchisor's terms.

This guide will help you decide whether franchising is for you. It show show you can find the right franchise, and highlights the key issues you need to consider.

Buying a good franchise can offer the support of established business systems and a proven market or concept that can help when you enter business for the first time.

With a franchise business, the Franchisor owns the system and you lease it for a period of time. You usually have to continue paying royalties over the business life.

If you’re buying a franchise, make sure you get advice from people with experience of the franchising industry, including existing franchisees,about their experiences both with the franchise it self and with the franchisor.

Advantages and disadvantages of franchising

Buying a franchise can be a quick way to set up your own business with out starting from scratch. But there are also a number of drawbacks.

Advantages

Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
You can use a recognised brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the "franchisor".
The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and on going advice.
You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same region.
Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
Risk is reduced and is shared by the franchisor.
If you have an existing customer base you will not have to invest time looking to set one up.
Relationships with suppliers have already been established.

Disadvantages

Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing royalties and you may have to agree to buy products from the franchisor.
The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local market.
The franchisor might go out of business, or change the way they do things.
Other franchisees could give the brand a bad reputation.
You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
Reduced risk means you might not generate large profits.