It Is All In the System...

Franchise or New Business?

Franchising indeed has benefits; reduced risk, brand recognition, an established business model, purchasing power, on-going support and training. There are of course higher costs associated with a franchise, as you’re required to pay franchise fees and royalties in addition to funding the business. Instead of a franchise, some people prefer to start their own business. This can be an attractive option to those more comfortable operating more independently. The nice thing about starting your own business is you don’t have royalties or franchise fees, thus a lower initial investment. Having your own business also gives you more freedom to operate without territorial restrictions that typically come with a franchise business.

Both Options Can Work

There are certain factors to consider if you’re contemplating business ownership yet uncertain as to whether to go franchise or new startup. It’s important to know you CAN be successful with either option. Both can provide the independence and pride of ownership most are seeking when they are going out on their own. Both can generate income and build wealth. They key question is to assess your personal comfort with risk.

A Proven System

One of the benefits of a franchise is the system. Having a proven and tested business model is one of the main reasons franchising has a better chance of success versus a new start up. When performing due diligence, it’s very important to assess validity of the franchise system. How does the franchise validate? Does the product or service provide value? Does their marketing help gain customers and earn a profit? Your best source of information during the validation process is speaking to current franchisees. Are they happy with their franchise? Does the business model work? If they had to do it over again would they? These are some of the questions that can help make your decision.

Understand the Differences

Franchising is not for everyone. In my experience, it’s best to explain the differences to prospective investors so they understand the benefits and potential costs associated with either option. Unfortunately, it’s pretty common to see people who were sold into believing a franchise was right for them. There are certain people who have the experience, capital and ability to create a new business model. They also have a desire to want to start on their own, as they are comfortable and willing to operate independently. Some prefer the structure a franchise model can provide and are willing to invest more money and pay the royalties for the structure.

Determine What’s Right for You

As stated previously, you can be successful with a franchise or a new start up. There are cost and benefits to each. If you are thinking about becoming a business owner, take the time to research both options. Ask questions. Learn the differences and make the decision that is best for you.

Todd Weiss, CFA
The Franchise Consulting Company
todd@thefranchiseconsultingcompany.com
866 934 7167