New Business or Franchise?

If you’re looking to invest in a business, you’re probably deciding between a start-up and a franchise. As the owner of both a start up and franchise business, I’ve experienced the benefits that both can offer.

Start Up Business Advantages

Maximum Control – Start Up businesses offer owners maximum control over what is sold and how it’s sold. In a franchise, there is little freedom to vary outside of the established system because of the model’s success and the need for a franchisor to maintain consistency among all stores.

Unlimited Income – A start up business offers unlimited income, with the potential to open as many stores in as many places as possible. With a franchise the geographic area and number of stores is typically limited by the franchise agreement.

Unlimited Options – If you have a specific business or industry in mind, there may not be a franchise available. To find the best franchise, you must be open to a variety of industries and/or businesses.

Franchise Advantages

Bank Financing – Most bank and SBA loan programs require two years of business history. This rules out bank financing for most start ups. However franchises can usually fulfill this business history from other franchise/model store data.

Brand Name – Establishing a brand name and reputation takes time and money. Many franchises already possess well known names and reputations that a new franchisee can benefit from instantaneously.

Systems – It also takes time and money to develop training programs, marketing/sales systems, and operational policies & procedures. With a franchise, these have already been developed and tested.

Support – As part of the fee for purchasing and maintaining a franchise, you receive support from the franchisor. This franchisor typically has a vested interest in helping you succeed because they receive a portion of the income generated from the franchise.

Fallback – Franchisors have to disclose to potential buyers their number of open vs. closed stores. This gives the franchisor incentive to have little or no stores closed. As a result if a franchise owner needs to close a store for financial reasons, the franchisors will often purchase or arrange a purchase of the franchise to keep the store open. The franchise owner may still lose money, but can at least get some of the initial investment back.