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Start-Up VS. Franchise

Posted by trinda On July - 1 - 2015

Start-Up VS. Franchise

Buying a small business is a major career step. One of the first decisions you’ll need to make relates to the type of business you hope to acquire. Specifically, you will need to decide whether to start your own business or a franchise.

Some professionals thrive as independent business owners, while others are more likely to prosper as franchise owners. In reality, there are no easy answers to the startup business versus the franchise . Instead, you will need to carefully evaluate the factors that differentiate the two approaches.

1. Ownership Model

From an ownership perspective, a franchise is very different than a start up business. A startup business offers you the ability to grow the business products, processes, offerings and systems from the ground up.

But on the other hand, owners don’t have the security of knowing that product lines, service offerings and other ownership decisions have already been tested and optimized for the marketplace. In other words, although franchise owners sacrifice building and developing the business from the ground up, they enjoy the security and stability that comes from belonging to a much larger organization with a proven track record.

2. Cost

Independent business owners are likely to have higher investment costs to buy and operate their business, but they also have more control over the investment decisions and timing thereof. For example, if cash is tight, independent business owners can delay remodeling or expansion plans. They can also choose to downsize the scope of the projects they pursue.

Franchise business buyers typically have lower total investment costs (especially upfront), but need to fulfill the obligations set by franchisors. For example, in addition to an upfront franchise fee, franchise buyers are required to pay royalties on an ongoing basis.

3. Brand Recognition

In most cases, franchise buyers have an advantage over independent business owners when it comes to brand recognition. Unless the independent business seller has proactively cultivated the brand, it’s unlikely that the business will enjoy the brand recognition that comes with standard franchise business opportunities.

4. Operational Resources

Franchise businesses tend to be popular with buyers who lack extensive business or industry experience. Certainly, experienced business owners also buy franchises, but franchisors make it easier for first-time business owners to succeed by providing access to a business system, corporate support, a supplier network and other services.

Independent business owners, on the other hand, typically have to go it alone. In return, however, they get complete control. Although independent business owners retain total control over their companies, they don’t have access to the support franchisors provide their franchisees in marketing, operations, supply chain management, human resources and other departments.

5. Success Rate

A study by the International Franchise Association (IFA) suggested that at many as 95 percent of new franchises were still in business after five years, and 91 percent after seven years.

According to the US Bureau of Labor Statistics and the US Small Business Administration  just over 30 percent for independent start-ups last longer than 10 years.

As a business buyer, you need to evaluate each potential acquisition on its own merits. Both franchises and startup businesses fail every day, and at the same time, people clearly have success with both models.

Ultimately, the decision to buy a franchise or start a business business may boil down to your personality as a business owner. If you can’t see yourself growing the business products, processes, offerings and systems from the ground up , then a startup likely isn’t the right business model for you. However, if you prefer the security, stability, and benefits of participating in a larger organization, then  a franchise may make more sense than starting from the ground up.

For more information and to Be your Own Boss  email ttresham@wsifranchise.com

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