Buying a Franchise vs independent business

If you’re considering purchasing a business, you generally have two options: franchises or independent businesses. The best course of action will depend on your priorities and the goals you have for your business..

Buying a franchise

Owning a franchise means going into business for yourself, but not by yourself. You operate a business under the established brand of another business.

Advantages of owning a franchise

• Tested model. All of the hard work involved in developing processes, pricing, procedures, products, and services has already been done. In general, this can help you avoid costly errors by adhering to tried and tested systems. Additionally, this enables you to hit the ground running immediately upon entering the business, as opposed to spending time figuring out the best way to do everything.
• Ongoing support. Franchisors offer invaluable support and a shoulder to lean on. They provide training, assistance with fit out, stock management, marketing, supply chain management, operations, and human resources, among other services. Access to these resources can assist you in getting started quickly and will continue throughout your tenure as a franchisee. Joining a group of businesses also provides you with an immediate network of other business owners from whom you can learn and ensures that you are not left to make critical decisions on your own.
• Brand recognition. Joining a well-known brand means your business will have brand awareness from day one. Having an established reputation, even if you launch in a new location can be a huge advantage. Big brands also tend to bring a strong customer following, so you can have business in the door from day one.

Disadvantages of owning a franchise

• Limited control. Signing a franchise agreement means you’re committing to following the franchisor’s guidelines. While you’re definitely the owner of the business, you can’t change whatever you want, whenever you want. For example, a franchise agreement can restrict the territories you can operate in, your pricing structure and other key business decisions. Following the rules can mean less flexibility and creativity in the way you run and develop your business.
• Ongoing fees. The benefits of owning a franchise come at a cost. Typically, you’ll have to pay an upfront fee to buy the franchise as well as other ongoing fees. These tend to be for things like marketing and training, as well as a franchise fee and other levies. While sharing the profits with the franchisor gives you access to benefits, they’re also costs you need to factor in, deduct from your own profits and pay even if you run into tough times.
• Collective reputation. Joining a business with a well-known brand name can bring success, but it also means your business will be judged by the behaviour of others. Poor performing franchisees may impact on your success and the brand reputation of the entire franchise. This means your business reputation is somewhat in the hands of others and out of your control, which can be devastating if something unseemly happens.

Buying an independent business

An independent business is a business that’s owned by one person, or a small group of people (like a family or business partners).

Advantages of owning an independent business

• Freedom. The greatest advantage of owning your own independent business is calling the shots. Because you don’t report to anyone, you have complete freedom and can make all the decisions. You choose everything from the business model, training, marketing and branding, to who you hire, where you’re based and how often you work. There are no rules for how much your business can expand and you can change the strategy whenever you want.
• Cashflow. As the sole owner of the business, you get to decide where to invest your income. Because you don’t have to pay royalties or additional fees, more of your profits can be put directly into growing the business or even upping your paycheque. Similarly, if you do face cashflow problems, you have control over where money is spent and can delay projects or plans until the timing is right.

Disadvantages of owning an independent business

• Limited support. Even if you do have a background in the sector and you’re taking over an existing business that has already had some success, you’re on your own from the start. Of course, you can (and should) build a network of other professionals to bounce ideas off, but when you’re faced with hard times, it’s all up to you.
• No manual. In your own business it’s up to you figure out the best way to do things and there’s no manual to follow for what will and won’t work. This gives you great freedom, but the choices and changes you make to things like products and services can also have a huge effect on the success of your business. If you take a wrong turn, your business may suffer and you will be responsible for any fall out.

How to choose?

Businesses succeed and fail on a daily basis, and every business purchase involves risk. Thus, the decision to purchase a franchise or an independent business will ultimately come down to your personal characteristics and personality as a business owner.

Do you consider yourself to be creative, innovative, and self-sufficient? Or are you attracted to ease and a pre-assembled support system?

If you cannot envision yourself relinquishing decision-making authority, a franchise is probably not for you. However, if you prefer a structured model and are willing to support the brand, you may be a franchisee in the making.

Similarly, if the prospect of being in complete control makes you uneasy, an independent business may not be for you. However, if you enjoy the idea of working for yourself, a private business may be for you.

Whichever path you take, it is critical to conduct research at every opportunity. You must determine whether your personal values align with those of the business or brand and commit to conducting research.

The more information you have about yourself and the services that a business can provide, the better equipped you will be to make the best choice for you.