Registration or Purchase: Where to Start Your Business?

Many entrepreneurs starting to work in the USA face the dilemma of whether it is better to buy an existing business or register their own from scratch. There is no straightforward answer to this question, as both options have their pros and cons, so you need to consider your capabilities and plans.

You can operate any type of business in America, but the key is to first think about marketing and management. Without these two processes, it's impossible to launch a profitable venture. For example, you might open a boutique selling exclusive ties, but if you do this in the desert, you’ll fail instantly. Even if the advertising campaign costs millions, no one in the desert will be walking around wearing ties exclusively.

We won't delve into the intricacies of marketing and management now, especially since there are numerous books written on these topics. Instead, let's explore the different ways to start a business in America. There are four main options.

Buying an Existing Business

In this case, you choose an already functioning and stable business and acquire all rights to it. This is a good option if you want to start making profits immediately rather than spending time and resources developing a strategy that may not pay off.

Advantages:

• Established Operations.You are purchasing a business that has already proven itself and does not require extensive marketing. Additionally, you bypass the initial organization phase, during which you are just spending without generating any profits. This period can drag on, and as a result, the business may not break even for a long time.
• Reputation.An existing business has already carved out a niche in the market, has partners, products, an understanding of the competition, and a formed customer base. There may even be loyal customers who prefer this specific product.
• A Cohesive Team.The company already has a solid team in place, or at least a core group that sets the pace, understands the intricacies of the business, and can train newcomers. It is essential not to disrupt the existing system but rather to improve it.

Disadvantages:

• High Cost.Buying an existing business requires a significant investment, as the seller has already invested a lot into the company, and logically, they expect to recoup those costs.
• Unforeseen Expenses.Even if everything looks perfect on paper, in reality, you often find that modernization, staff training, repairs, and other expenses arise as you get more involved in the business.
• Risk of Buying a Losing Business.If you are purchasing an existing project, it is crucial to understand why it is being sold. It is one thing if someone never intended to run the business and established it merely to profit and is now selling it to enjoy life.

The situation is entirely different if a once-successful enterprise has become unprofitable and is simply being offloaded quickly. For instance, there have been cases where new management did not get along with the old employees, leading to mass departures that took clients with them. As a result, such a business becomes useless because it needs to be rebuilt almost from scratch. Alternatively, strong competitors might have emerged nearby, overwhelming the company with no chance of improvement. Sometimes, purely subjective reasons arise: in one popular restaurant, a murder occurred, and visitors stopped coming due to the negative reputation of the place.

In short, do not overlook the importance of gathering preliminary information, and do not trust everything the business owner tells you: they are motivated to sell, and therefore you will not learn the whole truth from them.

Moreover, try to assess the overall situation in the industry you wish to enter. If things are bad and the entire industry is going through tough times, it's better to abandon the purchase. Remember, you are not only buying problems but also risking losing all the money you invested in this business.

Buying a Franchise

Franchising is the official use of a well-known trademark and business model. For example, if there is a very popular restaurant, you might want to open a similar one. You "lease" the brand, open an establishment under a recognized name, and earn profits without investing in promoting an unknown company. However, there are nuances here as well.

Advantages:

• Quick Profits.The business starts operating and generating income relatively quickly after opening.
• Clear Financial Investments.You know exactly how much money you need to invest, what working capital, what equipment, etc. There will be minimal unforeseen expenses and unexpected situations related to sudden costs.
• Support from Business Owners.Franchise owners are interested in maintaining their reputation, so they offer favorable conditions at the initial stage, rent necessary equipment, and assist with obtaining bank loans.
• Less Time Required.When opening a franchise, you follow a ready-made, proven template, so the launch of the business happens relatively quickly compared to starting from scratch.

Disadvantages:

• Initiative is Punished.A franchise operates under a fixed template. You cannot change anything: the menu, design, suppliers, corporate ethics. You must strictly follow the agreed-upon instructions; otherwise, the franchise owners may terminate the contract, and you may still owe penalties. If something goes wrong, you have no options to make changes.
• Potential Losses.Not all franchise locations are profitable. Typically, 15% to 30% of franchise businesses are unprofitable. However, you cannot change the operation of the company. Nonetheless, you will likely need to upgrade or repair equipment, renovate the premises, and possibly send employees for training to meet the company's standards and improve their skills. What looks good on paper does not always turn out to be fantastic in practice.
• You Depend on the Franchisor's Reputation.If the main business incurs losses, you also lose profits. For example, if the popularity of the entire franchise declines. Moreover, as we noted, you cannot change anything without directives "from above." Fixed royalties from your profits for franchising must be paid regardless of how well your business is doing.

Partnership in an Existing Business

This option allows you to become a co-owner without purchasing or leasing anything and gives you a voice in decision-making. It's a good choice for those who want to invest money wisely while having experienced management and a solid team already in place.

Advantages:

• Established Business.You don't have to spend on setting up the business and dealing with the nuances associated with opening a new venture. You have a partner who understands the intricacies of the operation and helps avoid common mistakes. With good cooperation, all owners are interested in the business thriving.
• Reputation and Market Position.Typically, a share in the business is offered when the business is expanding, and the owner seeks a partner to help manage the growing flow of orders for goods or services. If demand is consistently rising, the offer needs to be increased – this is a sensible approach for a businessperson, and you have the opportunity to integrate into a stable and profitable venture immediately.
• Established Customer Connections and Experienced Team.An actively operating company already has established processes, so you just need to get acquainted with the intricacies of the operation. Yet, you can always introduce something new to increase profits through fresh perspectives.

Disadvantages:

• The Need for Consensus with Partners.You cannot make changes independently, and if your partner disagrees, there’s nothing you can do. Differences in management perspectives can lead to failure, so it’s better to clearly define your roles in the business and actions in case of critical disagreements in advance.
• Stale Problems.Even in a well-established business, there can be hidden issues that require significant money, time, and effort to resolve.
• Personnel Issues.If there’s nepotism in the company, you might find unqualified relatives and friends of your partner in key positions, and removing them could be impossible or only possible at the cost of damaging your relationship with the co-owner. So before purchasing a business, it would be wise to learn about such issues to avoid having to fight to update the team later.

Starting a Company from Scratch

This option is for those who want to be independent from partners' opinions and do everything according to their own vision of business.

Advantages:

• This is Your Business Completely.From the very beginning, you operate as you see fit, without having to conform to anyone else's expectations. Well-structured marketing and positioning, the right team, good equipment, and quality service will allow you to make your business successful and efficient. This could be the most favorable investment of all the options mentioned.
• No Hidden Problems from Previous Owners.Firstly, you won’t have to search for these problems because you know every detail of your operation, and secondly, you won’t have to resolve them. Issues with clients, disputes within the team, the need for repairs, inconveniently located premises – none of this will exist because you will set everything up according to your needs from the start.
• Rational Use of Money.You invest your money only in what you actually need, unlike purchasing an existing business where you might have to buy outdated equipment, leftover goods in warehouses, old furniture, etc.

Disadvantages:

• Lengthy Organizational Period.When starting a business from scratch, be prepared for at least six months after registration before you can begin operating. Until then, you will be busy purchasing equipment, advertising, renovating, hiring staff, and a million other tasks that are essential to starting operations.
• Operating at a Loss.The first year of any new entrepreneur’s journey is often characterized by losses, with only 11% of companies in the U.S. starting to turn a profit within the first year. The second year will reveal whether your company will be profitable and whether you will recoup your investments. It’s only in the third year from the start of operations (fourth after business registration) that you will begin to see profits. So you need to assess whether you are prepared to wait that long to start recovering your capital investments.

Assistance in Opening a Business

Regardless of which option you choose, our company will help you navigate every step from business registration to launching operations. Our specialists have sufficient experience to avoid pitfalls, handle bureaucratic formalities, and analyze business development prospects. You will receive complete consultation and answers to all your questions, enabling you to start your new venture according to all business regulations, confidently and legally.