Buy A Franchise Vs Start Your Own Business
Ultimately, that’s up to you to decide. But it helps to layout the pros and cons of both situations. Your aversion to risk, business experience, and financial considerations should all be taken into account.
Pros and Cons of Starting Your Own Business
Whether purchasing a franchise or starting your own business, one of the most common reasons indicated by would-be entrepreneurs is to be their own boss. It’s a great feeling to have that autonomy and freedom of decisions. It’s also very rewarding.
If you have the financial wherewithal to fund, and in some cases “bootstrap” your business, starting your own can be the way to go. Even if you start your own company in the evenings and on weekends, still keeping your day job until it’s up and running, being your own boss is a powerful draw.
But there is a higher failure rate among new business ventures than among franchises. There is no franchise support, no franchise community to ask for advice, and it’s often more difficult to get financing for a company that doesn’t already have a track record. There are also no economies of scale in terms of purchasing and real estate, no brand recognition, and higher costs for things like advertising and design costs that are shared in a franchise system.
Pros and Cons of Purchasing a Franchise
Perhaps the biggest perceived drawbacks to purchasing a franchise are royalties and other fees paid to the franchisor. The trade off is that many of the negatives of starting your own business are mitigated or eliminated: franchise support, purchasing power, research and development costs, real estate and legal help, construction help, and a proven model with instant brand awareness. A franchise fee and royalty payment (usually a percentage of what you have made) are often small potatoes compared to the “tuition” charged by the “School of Hard Knocks”.
Franchises charge a fee for a reason: they went through the pains of developing products, systems, and a brand image to be successful. Consequently, the failure rate for franchise systems is lower than most new businesses.
It should also be noted that not everyone fits into the mold of being a franchisee. For some, the thought of being accountable to rules and systems of others is too constraining. Again, it’s up to you to weigh your aversion to risk with your need for autonomy.
Keep in mind that the strongest argument for purchasing a franchise is brand recognition. To open your doors with a customer base from day one, get preferred pricing on equipment and supplies, and have a network of support is a powerful motivator. But if you open your franchise in a new market where there is low unit density, the advantages of brand awareness are diluted which could cost you more money in advertising and grand opening costs.
You may also find that real estate is harder to come by and distribution challenges might make your cost of goods higher than a unit in the franchisor’s hometown. Careful research and questioning of franchisees in less developed markets will help you to gather the information you need to make the right decision.
Things to Consider No Matter Which You Choose
Consider what it really means to be your own boss. Being the boss of a start up, whether it’s your own or a franchise, also means that you’re in charge of everything from sales and accounting to healthcare and sweeping the parking lot.
Being the boss means leveraging your savings, sometimes even your home equity, all for the privilege of sleepless nights worrying about payroll. For many, these arguments are a strong reason to continue working for someone else.
But for thousands of Americans every year, living the American Dream of starting something from the ground up, even if someone else helps to point the way, is too big of a pull. Conducting research, asking the right questions of the right people, and knowing some of the hidden risks ahead of time help to make sure your final decision is the right one.
About the Author
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