Discuss the advantages and disadvantages of start-ups.
What will be an ideal response?
There are many reasons that people choose to start a new business rather than purchasing an existing business, franchising, or being an employee:
1. A start-up begins with a "clean slate." There are no existing employee problems, debts, lawsuits, contracts, or other legal commitments that must be satisfied.
2. A start-up provides the owner with the opportunity to use the most up-to-date technologies. There are no "legacy" locations, buildings, equipment, or software that can hamper productivity.
3. A start-up can provide new, unique products or services that are not available from existing businesses or franchises. Existing businesses and franchises exist because of their success in providing proven products and services.
4. A start-up can be kept small deliberately to limit the magnitude of possible losses. A purchased business or franchise requires immediate and constant cash flows to meet ongoing obligations.
Offsetting the advantages of starting a new business are several disadvantages:
1. A start-up business has no initial name recognition. An existing business or franchise has invested in developing its market. The brand rights can guarantee immediate acceptance of the business.
2. A start-up will require significant time to become established and provide positive cash flows. An established business or franchise has built-in customers to provide immediate cash inflows.
3. A start-up can be very difficult to finance. Established businesses and franchises provide immediate assets, sales, and cash inflows that can be used to obtain financing for the business.
4. A start-up usually cannot easily gain revolving credit from suppliers and financial institutions. An existing business or franchise often has lines of credit that transfer with the business.
5. A start-up may not have experienced managers and workers. Established businesses and franchises provide experienced workforces, training, and management support.
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