If you’re wondering whether you should go for a franchise vs. own business, this article will tell you what key considerations to make before deciding on one model.
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You know you want to start a business, but you’re not sure which is best — buying a franchise or starting your own business.
Deciding which to opt for is one of the first decisions aspiring business owners must make, but it can be challenging to choose if you don’t understand the pros and cons of owning your own business vs. franchising.
This article will help you determine the right choice for you by examining the critical points of franchising and starting your own business.
The Pros and Cons of Franchising
In the franchising business model, you pay the owner of the franchise a fee to use their name, logo, product, services, and systems. You also follow their rules and standards and may pay royalties based on sales.
Investing in a franchise means getting immediate recognition from a brand with an established market reputation. There’s no need to invest too much time and effort into branding to reach customers and develop loyalty.
Moreover, your franchisor will provide the tools you need to succeed, from marketing strategies to ongoing business support.
But there’s another side to these benefits. Franchise owners give you an established brand reputation, customer base, marketing and advertising support, training, and ongoing guidance.
However, this means that well-known franchises can be expensive to buy into and may require you to have access to a lot of cash.
Another huge drawback is that you’ll have less freedom in most operational aspects. Following already designated company protocols can limit your creativity and access to new business opportunities.
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We compiled a list of the 20 best franchises under $10,000 you can start in 2023
The Pros and Cons of an Independent Business Model
An independent business is a private, for-profit operation that gives you more freedom and flexibility than a franchise. Your business could be a sole proprietorship, partnership, or group of owners. All these can use a limited liability company (LLC) structure to protect personal assets.
An independent business model allows you to focus on running your business as you see fit and stay true to your core values. You get control over everything, including your name and logo, location, marketing strategy, budget allocation, and profits.
If you have a clear vision and enjoy the freedom of being your own boss, the independent business model may be best for you. As a business owner, you’ll have more control over decisions, resources, and planning than when buying into a franchise.
But you’ll also face challenges like finding expertise, developing markets, and dealing with higher risks and responsibilities.
💡 Pro Tip:
Business management tools like Connecteam can help you succeed by providing everything you need to run your business in one central platform.
You can handle employee scheduling and communication, task management, time tracking, digital forms, and more, allowing you to run your franchise efficiently.
Critical Considerations of Franchising Vs. Starting Your Own Business
As shown above, there are significant pros and cons to starting and running a franchise vs. starting a business. The best model for you will depend on your needs and preferences.
The following list of considerations may help you evaluate whether franchising or starting your business from scratch is better for you.
Your Business Plan
When choosing to open a franchise or your own business, consider your business plan first and foremost because it’s your blueprint for success.
Most franchises come with a business plan done for you, which can be a good or bad point, depending on how flexible you need to be in your local business environment and how independent you are. Done-for-you business plans will save you time on demanding and time-consuming processes but will also limit your options.
Starting an independent business may be a better solution for those who prefer to create their strategies from scratch. You’ll get to make all decisions yourself but will need to do all the research and possibly consult with experts in areas where you lack expertise.
Your Goals and Personal Skillset
If you have a brand new product to market, you carry a vision that demands expression, or you’re a solopreneur at heart, you should probably start your own business. But, if your goal is a safe, stable income with a high chance of success using a proven business model, a franchise may be the better path.
When deciding on your goals, also reflect on your skills. Having a business education or managerial experience will make success more likely if you’re starting a business. However, you may need the support and training that franchises offer if you don’t, considering independent companies require self-reliance and autonomy.
Investment Required and Ongoing Fees and Royalties
Evaluate the initial capital needed for both business options, as franchises often have higher upfront costs compared to starting your own business.
They also usually require paying ongoing fees and royalties or entering profit-sharing arrangements. On the other hand, an independent business comes with the potential for higher profit margins.
Brand Recognition and Risk and Success Rates
Consider the value of established brand recognition associated with a franchise versus building brand awareness from scratch with your own business. Each option will also have its risk and success rates, which you need to know before committing to an agreement to avoid potential business failure.
To assess the risk and success rates, consider factors such as industry trends, market conditions, and the track record of similar franchises or independent businesses.
🧠 Did You Know?
Most franchisors will dictate where you can open a franchise. These, and other details, will be layed out in the franchise disclosure document.
Flexibility and Control
Determine the level of flexibility and control you desire over business decisions, as franchises often have more standardized operating procedures.
Contrary to the operational guidelines and restrictions imposed by the franchisor, an independent business gives you the freedom to establish your own operating procedures.
Additionally, keep in mind that franchisors can impose territorial restrictions on franchisees. This may limit your ability to expand or operate in specific locations.
Competition and Growth Potential
Evaluate the competitive landscape and assess the level of competition for both franchise and independent business opportunities. While the competition can vary with both models, combating it independently as an own business can be more challenging.
While at it, consider the growth potential of each option. Take into account factors such as market saturation, expansion opportunities, and scalability.
Marketing Strategy and Advertising
A franchise will already have a marketing strategy prepared for you to use. As a private business owner, you’ll be responsible for all marketing efforts, from development to execution.
In the same manner, franchises often bear ad creation and display costs, but your private business must shoulder this time-consuming and expensive burden. Consider all this before choosing one business model over another.
Time to Profitability
If you have a great day job, a life partner with a good income, or a hefty nest egg put away, you may be able to afford the time it usually takes to get a startup to profitability — figure on two to three years. If not, a franchise may be a better option.
Franchises can be profitable as soon as they open because you don’t need to establish brand awareness. Everybody knows what Subway has.
Evaluate the available exit strategies for both franchise and independent business options, including the possibility of selling the business in the future. You never know what the future will bring.
Deciding Between Franchise vs. Own Business
Starting your own small business from scratch means investing time and money in creating your brand or concept. You’ll have complete control over every aspect, keep all the profits, and decide how to reinvest. But you’ll also have to solve all the business challenges that appear.
Franchises offer a solid alternative to these risks but require investing more resources and will limit your business options.
Deciding between buying a franchise vs. starting a business can be a challenging choice to make. Whichever route you chose to go, you need to make you have the right tools to manage your business.
Connecteam is the #1 all-in-one app business management software that helps you smooth out many operational:
- Oversee and manage company-wide operations
- Centralize and streamline HR functions
- Onboard and train employees
- Easily communicate with your workers regardless of where they are
- Schedule shifts, track work hours, and allocate tasks