How to Start a Business: 3 Roads to Becoming an Entrepreneur

Originally published September 18, 2012; updated September 2026.

There is more than one way to become an entrepreneur. You can start a business from scratch, buy a franchise or purchase an existing company. Learn the advantages, disadvantages, costs and due-diligence questions to consider before choosing your road to business ownership.

Deciding that you want to become an entrepreneur is only the beginning. The next—and often more difficult—question is how you want to become a business owner.

You do not necessarily have to invent a product, create a brand, and build a company from the ground up. There are three primary roads you can take: start your own business, buy a franchise, or acquire an existing business. Each can lead to successful business ownership, but the costs, risks, freedom, and work involved can differ greatly.

Before choosing among them, take a realistic look at your skills, financial resources, tolerance for risk and the amount of control you want. The U.S. Small Business Administration recommends researching your market, calculating startup costs and developing a business plan before committing significant money to a new venture. PowerHomeBiz’s guide to evaluating business ideas can also help you determine whether an opportunity fits your resources and goals.

No single formula exists for becoming an entrepreneur. A path that works extremely well for one person may be completely wrong for another. Understanding the advantages and disadvantages of these three approaches can help you make a more informed decision.

Key Takeaways

• There are three common roads to entrepreneurship: starting a business from scratch, buying a franchise and purchasing an existing business.
• Starting from scratch offers the greatest freedom but requires you to validate demand and build customers, systems and operations yourself.
• A franchise may provide an established brand, operating model and support, but franchisees pay for those advantages and generally operate under contractual restrictions.
• Prospective U.S. franchisees should carefully review the Franchise Disclosure Document and franchise agreement before investing.
• Buying an existing business may provide customers, infrastructure and cash flow from the outset, but buyers can also inherit operational and financial problems.
• Due diligence matters with all three paths. Startup costs, cash flow, contracts, market demand and personal financial capacity should be investigated before committing.
• The best route depends on your capital, skills, desired level of independence, risk tolerance and entrepreneurial goals.

The Three Roads to Business Ownership

Path	Main Advantage	Main Challenge	May Be Best Suited For
Start from scratch	Maximum control and flexibility	Everything must be built and tested	Entrepreneurs who want independence and have an idea they believe they can validate
Buy a franchise	Established system, brand and support	Fees and less operating freedom	Entrepreneurs who value structure and an existing business model
Buy an existing business	Existing operations, customers and potentially cash flow	Purchase price and inherited problems	Entrepreneurs who have capital and can evaluate an operating company

None of the three eliminates business risk. Instead, each gives you a different type of risk to manage.

1. Become an Entrepreneur by Starting Your Own Business

Starting an independent business offers something neither of the other two alternatives can completely provide: the opportunity to build the company around your own vision.

You are not bound by a franchise system or a previous owner’s decisions. You can choose what products or services to sell, how to position the business, what customers to target, and how quickly you want to grow. You can choose your location, decide whether you need employees, and determine how much money you are prepared to invest.

That flexibility can be especially attractive when you have identified a customer problem that existing businesses aren’t addressing well. However, having an idea is not the same as having a viable business. Before spending heavily on inventory, equipment, branding, or advertising, investigate whether customers actually want what you plan to sell.

Market research can help you understand prospective customers and competitors, while testing your idea on a smaller scale can provide evidence of actual demand. PowerHomeBiz discusses several ways to do this in 12 Ways to Evaluate Your Business Ideas and Products.

>> SEE ALSO: From Employee to Entrepreneur: Steps for Aspiring Real Estate Agency Owners

The challenges of starting from zero

The freedom of starting from scratch comes with a trade-off: there is no existing infrastructure waiting for you.

You may need to establish a brand, find customers, develop relationships with suppliers, choose technology, establish pricing, create operating procedures and determine how you will market the business. Depending on your location and industry, you may also need to register the business and obtain appropriate licenses and permits. The U.S. Small Business Administration explains that registration, tax, licensing and permitting requirements can vary according to the business activity and location.

You also need to understand what the business will actually cost. Some businesses can be launched inexpensively, particularly service businesses operated from home, while others require substantial spending on inventory, equipment, facilities or employees. Our guide to how much money you need to start a home-based business explains how to separate one-time startup expenses from recurring operating costs and personal financial runway.

If your business requires an Employer Identification Number (EIN), you can obtain one directly from the Internal Revenue Service at no charge. The IRS also provides a checklist for starting a business covering issues such as business structure, taxes and EIN requirements.

Starting independently gives you the most freedom, but it also means you must create the systems a franchise or established company may already have.

2. Become an Entrepreneur by Franchising

Franchising sits somewhere between building a company from scratch and buying an independent existing business.

When you purchase a franchise, you obtain the right to operate under an established company’s brand and business system according to the terms of the franchise agreement. Instead of developing every aspect of the operation yourself, you may receive an established operating model, training, marketing resources, supplier relationships and other forms of assistance.

That structure can be attractive to entrepreneurs who want to own a business but do not necessarily want to invent an entirely new business model.

Many franchise organizations also provide extensive assistance in terms of marketing, advertising, and even managerial support. Often, they provide management training and follow-up assistance. In many instances, you can save on inventory items, supplies, and equipment because the franchisor places bulk purchase orders and passes the savings on to franchisees. Some franchisors also help franchisees secure financing, while others provide the funding themselves. Franchisees find it easier to convince banks and other lenders to provide loans because franchises for sale are less risky than start-up businesses. Support can also be given in finding the right location, while some provide the layout, display, facilities and business techniques that have already proven successful in previous operations.

>> SEE ALSO: PowerHomeBiz Home-Based Franchise Directory

Understand what you are buying before signing

One of the most important protections for prospective franchisees in the United States is the Franchise Disclosure Document (FDD).

Under the Federal Trade Commission’s Franchise Rule, franchisors generally must provide prospective franchisees with an FDD containing 23 categories of information. The prospective franchisee must receive it at least 14 calendar days before the franchisor or its affiliate asks them to sign a binding agreement or pay money.

The FDD deserves more than a quick read. It includes information on fees, litigation, bankruptcy, initial investment, restrictions, financing, franchisor assistance, territory, trademarks, financial performance representations (when made), financial statements, and existing and former franchisees.

Do not assume that brand recognition automatically makes a franchise a safe investment. Speak with existing franchisees—and, when possible, former franchisees—to learn what operating the business is actually like. Ask whether startup costs were close to expectations, how useful the franchisor’s support has been, how long it took to build sales, and what they wish they had known before investing.

Franchise agreements can also restrict how you operate the business. You may have requirements involving suppliers, products, marketing, pricing practices, operating standards, renovations or territory. Depending on the agreement, you may also pay initial franchise fees, ongoing royalties, advertising contributions and other expenses.

Before investing, consider having an attorney experienced in franchising and a qualified accountant review the opportunity. The SBA likewise recommends professional assistance when evaluating a franchise purchase.

Franchising can give you a head start, but you are still an entrepreneur putting your own capital at risk.

3. Become an Entrepreneur by Buying an Existing Business

A third route is to purchase a company that someone else has already built.

The appeal is obvious. Instead of spending months or years establishing every element of the operation, you may acquire a business that already has customers, suppliers, equipment, employees, processes, inventory and a reputation in its market.

Depending on the quality of the company you purchase, you may also acquire something especially valuable: existing revenue and cash flow.

This does not mean you simply take the keys and continue collecting profits. As Kecia Hielscher’s experience buying and growing Formulary 55 illustrates, acquiring a company gives you an existing foundation, but the new owner still has to make difficult decisions about cash flow, inventory, employees, products and growth.

Some buyers arrange for the former owner to remain involved temporarily as a consultant or employee. This can help transfer knowledge, introduce important customers and suppliers and make the ownership transition smoother.

The danger of buying someone else’s problems

The greatest advantage of acquiring an existing company can also become its greatest weakness: you inherit what is already there.

The company’s sales may be declining. Equipment may need replacement. Inventory could be obsolete. Important customers may be preparing to leave. Employees may be unhappy about the ownership change. Supplier relationships could be deteriorating. The lease might soon expire, or the business may have become overly dependent on one customer, employee, product or sales channel.

This is why due diligence is essential.

Before buying, examine financial statements, tax returns, cash flow, debt, accounts receivable, inventory, contracts, leases, licenses, customer concentration, employee obligations and major supplier relationships. The SBA recommends reviewing the business’s infrastructure and investigating contracts, leases, existing cash flow and inventory before completing an acquisition. It also suggests obtaining professional help from an attorney and accountant.

PowerHomeBiz’s guide to factors to consider when buying a business provides additional questions prospective buyers should investigate.

The purchase price also deserves careful scrutiny. A seller naturally wants to obtain as much as possible for the company, while the buyer needs to determine what the underlying assets, earnings and future cash flow reasonably justify. Never confuse the seller’s asking price with the actual value of the business.

Buying an established company can shorten your startup journey considerably, but only when you understand exactly what you are buying.

Which Road to Entrepreneurship Is Right for You?

Rather than asking which of these three approaches is “best,” ask which one fits your situation.

Starting from scratch may make sense if you have an idea you want to pursue, value independence, have limited acquisition capital or want complete control over the brand and business model.

A franchise may make sense if you prefer an established operating system, value training and support, are comfortable following someone else’s business model and can afford the required investment and ongoing fees.

Buying an existing business may make sense if you have access to sufficient capital, prefer acquiring customers and infrastructure rather than building them from zero, and have the financial and managerial skills—or professional advisers—to evaluate an operating company.

Your choice should also reflect the kind of entrepreneur you want to be. Some people love creating something that did not exist before. Others are better at executing an established system. Still others excel at taking an existing organization and making it better.

All three are entrepreneurship.

The important part is understanding what you are getting into before committing your time, savings and energy.

Before You Choose: Ask These Questions

Whichever road you are considering, ask yourself:

• How much money can I realistically invest without putting my personal finances in danger?
• How much working capital will the business need after launch or acquisition?
• How much control do I want over products, branding, pricing and operations?
• Do I want to create systems myself or work within an existing system?
• What experience or skills do I already have that will help me operate this particular business?
• What evidence shows that customers want the product or service?
• What could make this business fail?
• What am I actually buying for my money: an idea, a system, physical assets, intellectual property, customers, cash flow or brand recognition?
• Have I independently verified the financial claims being made about the opportunity?
• Have I obtained appropriate legal, tax and accounting advice before making a major investment?

Becoming an entrepreneur is not simply about finding a business to start. It is about choosing an opportunity whose economics, demands and risks fit your resources and abilities.

Frequently Asked Questions