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Business start in 2020: Right time to invest or a dice game?

In 2019, the dark predictions of the global crisis already have been in the air. The gloomy future was associated primarily with the economic wars between China and the United States. But the oil disputes, the ongoing migration crisis and, of course, the worldwide quarantine have sent the world economy into such a steep dive that even the most talkative analysts are now silent.

Optimists call 2020 the biggest crisis of recent decades, while pessimists consider it to be only the beginning.

If your business is related to masks, antiseptics, play stations, and other essential COVID-goods, now you probably feel like a darling of fortune.

Prices have spiked for pandemic supplies on Amazon

If your business is tied to personal communication, meetings, tourism, or offline entertainment, most likely you have already robbed your piggy bank or are in a hurry reshaping your business model for online services.

Restaurant industry collapses due to widespread shutdowns

If you were planning to start your own business in 2020, now you are probably in a sleeping mode. A wait-and-see attitude is not the worst one, but passive preservation of assets means that they definitely will not grow. In the best case, you’ll remain where you are, in the worst, the inflation will have a bite of your apple pie.

A crisis is a recurring thing, and it is difficult to catch up with the lost time. "Money must work and make a profit" is a hackneyed phrase, but still it does not lose its relevance.

How to invest in a business in 2020 with minimal risks

If you do not want to invest in 2020 in good old gold bars, consider buying a ready-made business. The acquisition of a ready-made business is possible usually by two scenarios: direct purchase from the business owner or joining a franchise.

Let's consider the risks and benefits of each option using the example of buying a coffee shop.

Buying a ready-made business

In 2020, the choice of ready-made businesses is large. Bankruptcies have extended the standard reasons list for the sale. Therefore, there is a chance that you can buy a ready-made business much cheaper than it cost back in 2019.

The disadvantage of acquiring such a business is that the owner is interested in selling it as quickly and for as much as possible. Finding out the reason for the sale is necessary to adequately assess the strengths and weaknesses of this offer.

When buying a ready-made business, you must:

1. Conduct a high-quality audit and assess all the risks

Assessment of tax, financial, legal, industrial, legislative, reputational, and other risks is the first, mandatory step when buying a ready-made business. If you are a beginner, do not neglect professional help. If the tax liabilities of a company are verified by requesting the government authorities, then the financial and legal risks require a thorough investigation.

When buying a HoReCa business, check that all the sanitary and epidemiological permits are in place, that there are no unpaid fines or open litigation, etc. It is possible to remove these risks only by a narrow-profile check and a well-drafted contract.

If you are buying a business where equipment is used, take the time to check the condition of that equipment. For example, when buying a coffee shop, invite a technologist or barista who will be able to assess the staffing of the coffee shop, assess the risks, and the need for additional investments.

2. Communicate with staff

Sometimes, buying a company turns into a disaster, because key specialists leave with the former owner and the ready-made business turns into a useless blank. It is useful to communicate not only with the business owner but also with the employees before purchasing. Try to find out their fears, moods, their vision of the company's development. Many problems and hidden risks of a business become apparent when talking with ordinary employees. It is necessary to accept the fact that a certain number of employees will leave anyway. So it is important to identify key specialists and try to motivate them to stay with the company.

3. Assess the customer base

If you buy a B2B business, ask for a snapshot of the customer base, its volume, geography, the number of regular orders, the estimated profit per customer, as well as a list of the largest customers and their share in the company's total profit. If the main income is brought by only a few customers, then buying such a business is associated with great risks. Regular customers can leave due to a change of contact person, they can be lured away by employees who have left for another company, etc. In case of buying a cafeteria, check the average bill, study the book of complaints and suggestions.

4. Assess the competitive environment

Especially tough competitive environment, as in the coffee business or car services, will require additional investments in marketing, development of your USP, and constant updating of offers. The complete absence of competitors is also not a good sign. This means that the service and product are not very popular in this region.

5. Assess management risks

When buying a ready-made business, you must understand how you plan to run it. From the moment the contract is signed, all the problems and difficulties of this business become your problems and difficulties. That is why it is so important to work out the existing business plan, make adjustments if necessary, and preserve the management backbone.

Benefits of buying a ready-made business in 2020

1. Low cost

As a rule, in times of crisis, owners are more willing to bargain, reduce prices, or provide more favorable conditions. But assess all the risks and your resources adequately. Be sure that you can restore this business. When being prepared, buying a ready-made, albeit unprofitable business will cost you several times less than creating a company from scratch.

2. Ready business model

If the owner sells a business that has been on the market for at least several years, then the business model has had a field-test. Relations with suppliers have already been established, there are specialists who know the product, and there is a developed client base.

Of course, if you are acquiring an unprofitable business, then you should carefully evaluate each of the above risks to find the reasons that led to bankruptcy. Nevertheless, you should not rush into rebranding with the hope of selling the same product or service under a new sauce ― this can scare away loyal customers.

In HoReCa, it is worth studying the customer experience. If negative reviews prevail, rebranding is necessary, even if it will entail significant marketing costs.

3. Attracting investments

It is easier to attract investments for a ready-made business. The requests for an already existing business are satisfied more often than for business projects that exist only on paper.

10 large restaurant businesses worldwide that were bankrupt or listed for sale in 2020:

Restaurants that were bankrupt or listed for sale

Joining a franchise network

In a franchise business model, the franchisor gives the franchisee the right to conduct business using the developed business model, trademark, or technology for a fixed pay. Often the franchisor gives the established network of suppliers with whom the franchisee is obliged to work.

Upon entering the franchise, you must:

1. Estimate the size of the initial fees and royalties

To enter the franchise, you need to pay a fixed fee. If the network is popular, the cost of entering can be comparable to the cost of a ready-made business. In addition to the entrance fee, you as a franchisee will be required to pay a regular royalty. Depending on the terms of the contract, this can be a weekly, monthly, quarterly, annual fee, usually tied to a percentage of revenue.

2. Estimate the marginality of the franchise

One of the advantages of buying a franchise is a clear business plan, usually worked out in several cities and even countries. You can roughly estimate how quickly your investment will pay off, what risks you will incur, etc.

3. Assess growth prospects

If you are ambitious and want to develop your coffee chain over time and want to quickly and flexibly change marketing and advertising policies, then perhaps a franchise is not the most suitable option. The franchisor's policies can greatly limit your initiatives. You won't be able to change anything in marketing and management, you probably won't be able to change contractors, even if you think it would be better that way. Therefore, it might be worthwhile to thoroughly study the already open franchises to understand how close this particular business is to your business vision.

Benefits of buying a franchise

1. Support

The franchisor not only provides a ready-made business plan but also conducts training. Unlike the seller of a ready-made business, here the brand owner is deeply interested in your success because the amount of royalties depends on it, as well as the cumulative success of the franchise.

2. Proven business model

As a rule, there are enough open-source reviews for large franchises, and there are stories of successes and failures. What is important, large franchise networks are usually represented in several regions. You will be able to compare the efficiency of a business in a metropolis and a small town, in a shopping center or at the station.

3. Brand awareness

Passing any Dunkin' Donuts anywhere in the world, the visitor knows what to expect. Buying the rights to a franchise, you are buying a promoted ready-made brand that has a circle of loyal customers. You do not have to spend money on promotion, advertising and marketing to increase the awareness of your cafe in the area, and you don’t have to be creative. On the other hand, failures or scandals of any of the franchisees will immediately affect your business. Common brand - common PR - common problems. This applies to promoted successful franchises, and the price of entry into them cannot be low. When joining new franchises, you will have the same marketing costs as when buying a ready-made business.

4. The ready base of suppliers

For newbies, the problem of choosing a supplier is one of the biggest risks. Customer satisfactuion depends on the quality of beans, dairy products, etc.. In the case of a franchise, this headache is not that big, because you immediately get a list of reliable partners at your disposal.

But as you gain more and more experience, one day you will notice that your business can be more successful and profitable if you change suppliers. Some franchise agreements provide complete freedom in choosing partners; others strictly limit the list of companies you can work with. Therefore, pay attention to this point in the contract.

10 best coffee franchises available in 2020

Franchise Franchise Fee Royalty Fees
Aroma Joe’s Coffee $15,000 4.5%
Dunkin’ $40,000 - $90,000 5%
Scooter’s Coffee $40,000 2%
Cafe2U $25,000 $175 weekly
Biggby Coffee $15,000 3%
Dunn Brothers Coffee $37,500 3%
Coffee Beanery $15,000 2%
The Human Bean $30,000 no
PJ’S Coffee $35,000 weekly
Xpresso Delight $37,500 1-3%

Comparison of a ready-made business and a franchise terms

  Ready-made business Franchise
Costs Starting from $2,000 Starting from $15,000
Business model Is individual in each case, you can change for yourself Standardized, proved and adopted in several regions
Payback Based on operational data Depends on franchise
Support No Training
Partner base
Loyal customer base
Risks Assessment and external audit required The roadmap includes the risks
Additional expensesMarketing expenses Marketing expenses Royalty Fees (weekly, monthly annually)
Flexibility (change the business name, rebranding, flexible pricing policy, etc Yes No

So, if you are immersed in the business field, you have ideas ​​on how to run a coffee business and a strong desire to develop in this direction in the long term, then buying a ready-made business is a suitable option. Here you can choose your own strategy, partners, react quickly, and flexibly to market changes, implement own ideas and management potential.

If you have zero experience in entrepreneurship and management and want to act for sure according to pre-prepared templates and schemes, then a franchise is the safest option for you. Have a look at local franchises, the entrance cost for them will be several times lower than for the world-known brands listed above.

Rozum Café, a ready-made business or a franchise?

Robotic Rozum Café is a compromise between buying a franchise and a ready-made business.

Thanks to the robot barista, almost all work in the cafe is automated. For autonomous servicing of 350 visitors every day, it is enough to replenish coffee beans, milk, water, cocoa powder once in the morning. This does not require any programming or robotics knowledge from the owner, only 40 minutes a day. Rozum Café has a standard size with a basic menu of seven coffees and a selection of three syrups.

robot barista

In this way, the management of Rozum Café is close to the management of a franchise:

  1. You know exactly what space for a coffee shop you need.
  2. You have a standardized menu that includes 7 most popular coffee drinks.
  3. Thanks to the robot, you are sure of the quality of the preparation of each order.
  4. Knowing the average coffee bill in your region and taking into account the productivity of the robotic coffee shop (350 cups per shift), you can accurately calculate the payback period.
  5. You have a support team that will always advise you.
  6. You do not have risks and additional costs associated with turnover, finding and training new employees.

robot cafe

At the same time, Rozum Café has all the advantages of a ready-made business:

  1. You can brand a robotic coffee shop as you wish: change the name, color, conduct advertising campaigns, etc.
  2. All profits are yours, you do not pay any royalties.
  3. You choose your own coffee suppliers, you can change the pricing policy without any additional approvals.

Rozum Café is an option for those who want to start their coffee business with the minimum investment of time and effort, like in a franchise, but do not want to depend on the actions and strategy of the parent company.