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Basic Types of Entrepreneurial Enterprises

by Ron Kurtus (updated 8 October 2015)

There are three basic types of entrepreneurial enterprises that you can start. The major type is when you start your own business. The other two are starting a franchised business and buying an existing business. Each has its advantages and disadvantages. It is important to do thorough research before starting a business.

Questions you may have include:

What is starting your own business?
How does a franchise work?
What about buying an existing business?

This lesson will answer those questions.

Starting your own business

Starting a business from your own idea is the most popular form of entrepreneurship. You have the personal pride in creating something from scratch and then seeing it grow into a viable enterprise. Also with the right idea, the potential growth is great.

Andre always liked to cook and always wanted to be in business for himself. He saw a good location for a small restaurant, was able to lease the building, and used his own funds to start up the restaurant. Opening day was a great success, and he hoped such good business would continue.

The negative aspect is that the chances of failure is high. Even if the enterprise is well thought out, the conditions may not be right for it to succeed.

Starting a franchised business

Buying a franchise in an existing business lowers the risk because the concept has been tested, marketing already exists, and you almost ready to get into business right away.

Some top franchises in the United States include:

Subway
Quiznos
Jackson Hewitt Tax Service
UPS Store
7-Eleven
Dunkin' Donuts
RE/MAX

Negative factors can be questionable profitability, high start-up costs, limited independence, and high royalty fees. The top franchises almost guarantee success, but are very expensive to obtain. Other franchises may not have a tested plan and may pose a greater risk than starting your own business.

Buying an existing business

Buying an existing business is often a simpler and safer alternative than starting up your own. It also does not have the strings attached when buying a franchise.

A big advantage in buying an existing business is that you do not need to spend time and energy to get the business up and running. Also, cash flow may start immediately. If the business has a good track record, you may already have a good customer base. If you purchase a failing business, you may need to spend extra time and money to try to turn it around.

John and Betty bought a dog care center that had been going down hill for several years, such that the business had few customers. But the price was right for them to run their own business. With hard work and good service, they hoped to get back old customers and make the business a success.

Unfortunately, the initial purchasing cost of a successful business is often very high. Another possible disadvantage involves hidden problems associated with the business. Also, receivables may are valued at the time of purchase but later turn out to be non-collectable.

Summary

The three types of entrepreneurial enterprises are starting your own business, buying a franchised business, and buying an existing business. Each has its pros and cons. It is important to do thorough research before starting a business.

You have what it takes