Retail & Franchise Owners

Should you buy a franchise or start your own business?

As a small business owner, you face a large number of choices about how to start and run your business. One of the first questions you need to tackle is deciding whether you should buy a franchise or start your own business. There are pros and cons to each, and the choice is ultimately based on your skills and comfort levels.

Franchising vs. Starting Your Own Business

A franchise is a small business model where you pay a parent company a franchise fee as well as ongoing royalties to operate within their company. As an owner, you benefit from the company's reputation and advertising, while also receiving ongoing training to open and grow your franchise location.

From education to gardening to home remodeling, there's a franchise for almost anything. Buying a retail business can be very exciting, as many owners are able find a business that matches their skills. Franchise costs vary widely, so be sure to research what financial obligations you will need to cover to start the business.

Starting your own business, on the other hand, gives you maximum flexibility, both in terms of what work you do and how much you invest to start. Many small business owners start their companies on the side while they work a full time job, and make ?the leap? to full time work in the business later.

Franchise Advantages and Disadvantages

Advantages:

• It can be easier to get a loan to purchase a franchise than it is to get financing to start a business from scratch. Bankers appreciate the proven model and are familiar with the financial risks of franchises.
• A franchise with a solid history gives you a lower risk enterprise than a new untested business idea. While franchises can, and do, fail, the risk is lower because of the proven business model.
• As a franchise owner, you're not responsible for all of the advertising. Most national franchises have well established brands and national advertising campaigns that make it easier for a new owner to stand out in their community.
• If you do well with a franchise, there's always a possibility to expand and buy more of the business, either in your city or in other areas.

Disadvantages:

• Ongoing fees and royalties can become frustrating over time, especially if you feel that you are creating most of your own success.
• Being a franchise owner can feel a lot like working for a boss, which can be frustrating to entrepreneurs looking for professional freedom.
• Legally, you sign a contract to stick with your location for a specific amount of time when you buy a franchise. That means that even if it fails or you're ready to move on, you may have to wait until the contract expires.
• Many franchise owners work very long hours, particularly if they struggle to hire reliable employees. Many types of franchises, especially fast food, have high employee turnover rates.

Advantages and Disadvantages to Your Own Company

Advantages:

• Being your own owner and boss gives you the maximum amount of creative freedom. If this is important to you, you likely want to start your own company.
• With full ownership, you gain the full reward of the company's success. You won't have to pay fees or royalties to another owner.
• When you own your own company, you can choose the form of business you prefer, and have the option to pass the company to your heirs if you choose.
• Having your own business keeps you free from the political and news-related scandals that can often affect franchises. With your own company, you don't have any public relations baggage.

Disadvantages:

• When you own your own company, the entire financial risk rests with you. This can affect your family, your retirement, and more if things go poorly.
• Finding financing for a new venture can be very difficult. As a result, new business owners sometimes need to ?bootstrap?, or self-fund, their company in the beginning.
• Because you handle the whole business, you have to learn to do everything. You will be setting up processes for your company from scratch. This can be very time consuming.
• Building your brand and getting noticed can be difficult for a new company with no brand image or national advertising.

How to Decide Which is Best for You

By asking yourself some questions and reviewing your motivation for starting a business, you should be able to determine whether it's better for you to buy a franchise or go it alone. Review the franchise pros and cons above and see which sounds best. Ask yourself if you're willing to give up part of your profits to a parent company in return for having a proven business model.

Think about what business or industry you want to be in and research what opportunities are available. If you're still uncertain, consider going to a franchise trade show to see what's out there and how to start a franchise business. Once you're aware of all of your options, you'll be able to weigh your own personal pros and cons as they related to starting a franchise, and make an informed decision.