Last Updated on Mar 6, 2020 by James W
For new entrepreneurs with money to invest, one of the most decisions is the choice between a franchise, where you buy into the business model created by a larger franchisor, and an independent business, where you start a venture of your own and grow it at your own pace. Take these considerations into account if you have to make this tough choice.
Finances: Finances is one of the key differences between a franchise and an independent business. Most franchises will require at least a certain amount of net worth or investment in order to qualify. The requirements are so varied that you will probably be able to find a franchise you can afford not matter your personal finances look like…but it may not be in your favorite industry. On the other hand, franchises have several benefits when it comes to borrowing money. Banks may be more willing to fund dependable franchises than new ventures, and franchisors may be able to help out with financing advice.
Control Issues: Franchises undoubtedly offer a lot of benefits, especially when it comes to supplemental materials. They provide marketing services, employee management services, internal materials and documents, supply chain information and many other types of help. However, they also tend to be strict: franchise policies and expectations must be strictly followed, particularly when it comes to things like promotions. If you prefer more control over your business model, how you advertise and when you expand, you may be more comfortable with an independent business.
Profit: Consider your profit goals. New ventures are tough to stabilize for the first several years of operations, and you may be in the red for a while. Franchises often offer better opportunities to immediately and effectively turn a profit, because they are based on proven business models. Of course, poor franchise models or franchises that are in failing industries may not offer much revenue, but strong franchises can lead to quick success.
Industry: What do you want to do? Franchises exist in a vast array of industries, but they are not suitable for every market or business dream. The tech industry, for example, is a better place to start a new venture and is largely devoid of common franchise opportunities. The same is true of related industries like SaaS (software as a service) and other web-related businesses. If you have an innovative product or service to market, a franchise probably won’t be able to help achieve your goals.
Position: This does not necessarily refer to a geographic location, but to how your business is positioned in the community. It may be more difficult to get involved in the community with a franchise. A local business tend to be more flexible in regard to community outreach, local events, commerce meetings and similar benefits.
Partners: If you are on your own, a franchise can be a great investment. However, if you have active partners that you are working alongside, it may be more advantageous to pick out a new partnership model that properly divides responsibility among the right people than try to wedge your business relationships into a franchise model.
Endgame: Where do you see yourself in five years? This question is actually one of the most important you can ask when considering a franchise or an independent business. If you want to build something, own it for long years and keep the company in the family, then an new venture may be best. The same is true of plans to ultimately take the business public or expand it into foreign markets – this isn’t really a possibility with franchises. On the other hand, if your goals are to start a successful company, run it for several years, and then arrange to sell it at a profit, a franchise may be the perfect solution for your business.
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Justin Norris is a professional blogger that provides tips and information on franchise opportunities and investments. He writes for Franchise Expo, the place to find the best franchise opportunities available.