What is a small business? According to the SBA a small business concern is “one that is independently owned and operated and which is not dominant in its field of operation.” The law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately. But what opportunities are out there, and what are the pros and cons in the different types of businesses?.
Smart Entrepreneurs Make an Appropriate Choice
The number one question should be in choosing a business venture: “have I ever done this before?” Most successful businesses are a natural outgrowth of a previous position working in that industry, or by expanding a leisure pursuit into a paying enterprise. The best opportunities are sometimes right under our nose. Don’t think you have to fly all over the country when there are plenty of local opportunities to choose from. Here are some of the pros and cons of each type of endeavor:
Distribution – When it comes to getting goods from the thousands of product manufacturers into the hands of consumers worldwide, the role of wholesale distributor is a crucial one, because neither manufacturers nor the businesses that buy their products for resale could survive without them. Quite simply, distributors are middlemen. They buy products from manufacturers, then sell them to retailers at a profit. This type of business may allow for great flexibility, low inventory investment, and stability in changing market conditions.
Manufacturing – Manufacturing is defined as the making or processing a raw material into a finished product. The profits traditionally associated with manufacturing are very attractive, and for manufacturers who have carved out a niche for their products, the business may have a stable market window which lasts decades.
Professional services – The service industry in America is growing rapidly. Professional services are provided to both business and consumer markets and make up a large part of our economy. A services business might be a large insurance company, or just one individual. Marketing an intangible, such as a service may be a challenge for some people. As a professional service provider you may face special challenges promoting yourself to potential clients.
Retail Businesses – Over ½ of all of today’s workers consider opening a retail business during their lifetime. That sub shop or hardware store might look interesting from the outside, but lifelong retailers know that survival requires long hours, patient bankers, deep pockets, and boundless energy and determination in addition to keen financial skills and location, location, location. 4 out of 5 retailers discover the painful way that a lot of their hard work is mostly for their landlord. “To make a small fortune in retail, invest a large fortune” is the old joke.
Some Possible Advantages of Buying A Franchise
Turnkey System – A franchise system is a proven system for operating the business and generating profits. If your skills are weak in sales & marketing or operations then a turnkey franchise may be best.
Franchise Support – Small business owners often have very little support or lack a support team with business acumen. Buying a franchise offers the opportunity to share your challenges with other like-minded entrepreneurs. As franchise companies state, you’re in business for yourself, but not by yourself.
Lower Inventory Prices – The collective buying power of a franchise group allows for lower costs in purchasing inventory and equipment. Independent businesses usually have less bargaining power with suppliers.
Brand Name – The more established franchises provide a market awareness & brand name to franchisees. This can amount to great savings in customer acquisition costs and allow for more time in the operation of the business.
Easier Staff Recruiting – Finding good employees is a critical success factor for many independent small business owners. A franchise business with a recognized name will have greater recruiting pull than an unknown business entity.
Possible Downsides to Buying A Franchise
Less Freedom – Franchisees are required to share financial information and conform to uniform operating procedures. An independent business owner makes all the business decisions.
Higher Start-Up Costs – Buying a brand name franchise is often beyond the financial capability of many potential business owners. An independent business may be more realistic financially if the owner is willing to focus on building a strong business operation.
Royalties – Each and every year franchisees are required to make royalty payments in return for support in operations and advertising. Some franchisers may not provide all the necessary resources for the success of your particular location. Talk to other franchisees for feedback on the level of support they receive.
Broken Promises from Corporate – The franchiser may not have the ability to provide market or field support. Owners can become reactive and expect the head office to solve all the problems. In your own business, the only person you count on is you.
The buying a franchise option works best for individuals who work well in a team environment and have limited business & industry background. For others, the road to “true” entrepreneurship could represent the ideal path to business ownership. Take the time to consider your options. Buying a franchise may be right for you.