Coates & Davenport, P.C.

Purchasing an existing business versus a franchise in Virginia

Not all people in Virginia who want to own a business necessarily want to start one from the ground up. For some, it makes more sense to purchase an existing business or open a franchise. It is important for these potential business owners to understand more about these options, so they can make informed decisions.

The basic difference between purchasing an existing business and opening a franchise is how much guidance and control the business owner has over the business. Many restaurants, stores and hotels are franchises. When a person purchases a franchise, they purchase the ability to utilize the franchisor's name, logo and products. However, the franchisor can institute rules that the franchisee must adhere to with regards to how the business is operated.

When a person purchases an existing business, unlike a franchise, they have complete ownership over the business. Purchasing an existing business has advantages. One is that there is already a mode of operation in place; there are employees who are already trained in their positions; and there is an existing customer base (goodwill). That being said, a person who purchases an existing business still needs to have a plan in place regarding how they want to run the business moving forward, or their venture may not succeed.

To decide whether it is a better idea to franchise or to purchase an existing business, there are three general things to consider. First, the potential business owner will want to quantify their investment. How much are they willing to pay for a business and how much control do they want over the business? The potential business owner will also want to take into account their own personal talents and way of living. Do they already have experience in owning a business, or do they want more hands-on guidance and help? Finally, whether a person is looking to franchise or purchase an existing business, they should have a good understanding of the business' current infrastructure.

There are many good reasons to franchise or purchase an existing business. Either option can prove to be a financial benefit to the potential business owner. However, it is important for potential business owners to understand any business laws that may apply with regards to their purchase. Fortunately, professionals are available to help potential business owners make informed decisions.

Source: SBA.gov, "Buy an existing business or franchise," accessed on Feb. 5, 2018

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