The first step to running your own business is to decide which path you want to take to become a business owner. One option is to start your own business from scratch. Another option is to buy a franchise, which is an already existing business. Both choices have pros and cons, and whichever you decide to pursue will depend on your interests, skills, and goals. Regardless of which route you choose, you will be the proud owner of a business while being responsible for its success. It is an important decision that requires careful consideration.
Pros & Cons to Franchise Business Ownership
Understanding the pros and cons of franchising will help you make an objective decision regarding your future as a business owner.
There are several unique advantages to owning a franchise, including:
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- Trust & Brand Recognition – Since a franchise is an already existing business, it is likely to come with customers already loyal to the brand. Additionally, brand recognition goes a long way in attracting new customers. Naturally, this will make it easier to grow your revenue from the start.
- Established Operations and Systems – There’s no need for trial and error when establishing operating procedures for a franchise business. The franchisor will provide tools and systems that have already been proven to work, which will help you to effectively run your business.
- Economies of Scale – “Economies of scale are cost advantages reaped by companies when production becomes efficient” (Investopedia). A franchising network lends itself to achieving economies of scale through bulk rates, gaining vendors’ trust, and credit opportunities. This ultimately lowers costs and increases production across the board.
- Access to Expert Business Advice – Franchise owners have the opportunity to access experts and advisors within the business. Not only does this mean you will receive quality marketing materials (brand, logo, maintained website, etc.), but you can also get advice for any issues that arise.
- Initial and On-going Training – Franchisees aren’t left to fend for themselves when starting their business. Instead, franchisors offer extensive training upfront on every detail of the business, as well as more advanced training as the business grows.
- Speeds Up the Path to Business Ownership – Joining a franchise comes with unique financing opportunities since lenders often favor an established franchise brand’s referral. Franchisors also provide their franchisees with the blueprint for starting their own business. These aspects of franchise ownership mean that you can open your business relatively fast.
- Faster Return On Investment (ROI) – Starting your own business requires building your reputation and clientele from scratch. Since a franchise comes with a recognized brand and ready-made customers, you’re likely to become profitable faster than if you start your own business.
- Increased Probability of Success – While success is never guaranteed, your probability of success goes up with franchise ownership simply because you’re joining a business model that’s already been proven to succeed.
- Exit Strategy & Resale Value – Franchisors often offer a clear exit plan for franchisees when they’re ready to retire or move-on. Additionally, selling a franchise business is often easier due to brand recognition. The franchisor also has the option to buy back the business.
A few drawbacks to franchise ownership worth considering include:
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- Lack of Independence – Similar to an HOA, being a part of a franchise requires both an initial payment and recurring fees and royalties to the franchisor. This gives you the ability to use the franchise’s name, reputation, and anything else that the brand entails. Franchisees must adhere to the franchisor’s set procedures so they don’t have 100% control over the business.
- Brand Alignment – Being a part of a successful brand is a key factor to a franchisee’s success. On the flip side, when a franchise brand gets bad press, then it will also directly affect your business. This could be a decision that the franchisor makes or a situation that puts another franchisee in the spotlight. For example, Jack in the Box had a serious E. Coli breakout in 1993 that impacted hundreds of people. If that wasn’t bad enough, headquarters didn’t immediately express their concern or own the problem. At the time, this situation damaged the reputation of all Jack in the Box locations, not just the ones responsible for the E. Coli breakout.
- Additional Costs – Any type of business ownership requires a significant investment, but owning a franchise comes with unique costs. These include various franchise fees as well as penalties if a franchisee violates the brand’s standards.
- Lack of Independence – Similar to an HOA, being a part of a franchise requires both an initial payment and recurring fees and royalties to the franchisor. This gives you the ability to use the franchise’s name, reputation, and anything else that the brand entails. Franchisees must adhere to the franchisor’s set procedures so they don’t have 100% control over the business.
Pros & Cons to Start-Up Business Ownership
The pros and cons to a start-up business contrast to those of a franchise.
The primary benefit to starting your own business is:
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- Total Control – For some people, this is reason enough to choose a start-up business over a franchise. You get to do your own market research and determine your business’s location. You can also spearhead your own financing opportunities and marketing efforts. You won’t need to rely on anyone for your brand’s design, product sourcing, or approval to expand. The sky’s the limit when you control every aspect of your business.
The advantage to independent business ownership is also its greatest disadvantage for the following reasons:
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- Starting from Scratch – Everything begins and ends with you with a business start-up. You have to start from ground zero and are responsible for any and all growth.
- Lack of Support – In the beginning, a start-up business will likely lack resources and processes. As the business grows and becomes more established this might be less of a concern, but it will inevitably lead to a lot of stress when starting the business.
How to Decide Between a Franchise vs a Startup – 3 Questions to Ask Yourself
If you are honest with yourself, the answer to the following questions will help you decide between pursuing a franchise or starting your own business from the ground up.
1 – How Do You Handle Risk?
No matter what, becoming a business owner requires some degree of risk. If you are more risk averse, then becoming a franchise business owner might be the right option due to its proven business model and the support you’ll receive.
2 – Are You a “Big-Picture” Type of Person or Like to Follow a Prescribed List of Actions?
For someone who prefers to hit the ground running with a sense of direction and certainty, then owning a franchise is the way to go. The franchise will handle all of the details that go into creating a marketing plan, designing the brand, establishing partnerships with vendors, and more.
However, some people thrive in the process of making their vision come to life how they see fit. If that’s you, then you might consider starting a business from scratch.
3 – How Do You Take Direction From Other People?
While franchise ownership definitely gives you freedom from the daily grind of a 9-5 job, you will still have someone to answer to. The franchise will have procedures for you to follow, and may require you to share your franchise’s financial information or allocate a certain amount of money on marketing each month. However, franchisees also gain invaluable tools with this type of oversight, which allows them to understand their performance compared to other franchises.
If this type of relationship doesn’t pose a problem to you, then franchising is a great option to pursue!
Are You Interested in Franchise Ownership?
It’s important to do everything you can to set yourself up for success as a business owner. If you’re interested in buying a franchise, then FranNet can help. Our team of franchise consultants will help match you with the right franchise opportunity. We have hundreds of verified brands to choose from. We will guide you every step of the way and give you everything you need to make an informed decision. What are you waiting for? Schedule a free consultation today!