Module 3: Are you torn between the decision to buy a business or to buy a franchise? Well, i advice you read on as i compare the pros and cons of buying a business and buying a franchise.
One of the biggest career steps that you will take as an entrepreneur is buying a small business. And before taking that decision, many entrepreneurs are confused as to the type of business to acquire. Specifically, they find it hard to decide whether to buy a standalone or a franchise.
Choosing the wrong option can prolong your road to success by years, so it’s very important that you fully understand the key differences between them when trying to determine which option is the best fit for your personal and business goals.
Should You Buy a Standalone Business or a Franchise?
Well, there’s no blanket answer to that question. The truth is, some entrepreneurs are more likely to prosper as business owners, while others will thrive as franchise owners. So, you will need to decide which one is right for you by evaluating the differences between the two options and talking with others.
Now, let’s look at the factors that differentiate the approach of buying a business from buying a franchise.
Buying a Business Vs. Buying a Franchise: Which is the Best?
You will most likely require higher investment costs to buy and operate an independent business. But this comes with the advantage that you will have absolute control over your business. For example, you can delay remodeling or other plans when cash is tight. And you can take whatever step you want in order to cut costs.
Buying a franchise, on the other hand, usually requires lower investment costs than buying a full-blown independent business. However, you will need to fulfill all obligations set by the franchisor. You will be required to pay an upfront franchise fee, in addition to which you will pay royalties at periodic intervals on an ongoing basis. And when it comes to vital business decisions, you have no say, as only the franchisor often has the right to influence those.
2. Ownership model
Business owners have the freedom to change their products or services based on their personal desires or changing market conditions. However, they don’t have the security of knowing that newly introduced products and services as well as other decisions have already been tested and optimized for the marketplace.
While franchise owners enjoy the security and stability that comes from belonging to an established organization with a proven track record, they give up the freedom to make business decisions.
3. Brand recognition
Unless you buy an independent business whose brand has been proactively cultivated by the seller, the business has very slim chances of enjoying the brand recognition that comes with most franchise opportunities. So, franchise buyers have an advantage over business buyers when it comes to brand recognition.
However, the brand recognition factor is a two-edged sword; it can have a dark side. If the franchisor or another franchisee does something that destroys the reputation of the brand, all franchisees under that franchisor will suffer the consequence. And this is one risk that you don’t have to worry about if you are buying a standalone business.
4. Operational resources
Although independent business buyers have all the control of their business to themselves, they usually don’t have access to the support that franchisors provide their franchisees in areas such as marketing, operations, human resources, supply management and so on. This explains why franchises tend to be popular with buyers who lack extensive business or industry experience.
5. Success rate
There are no conclusive evidences to prove that one option increases or reduces your likelihood of success. And the variances in the success rates of each approach are highly debatable. Both franchises and independent businesses succeed and fail. So, the most important thing is to do your homework before making a decision.
In conclusion, buying a business and buying a franchise each has its pros and cons. Your decision to choose one of the two options might boil down to your investment capital and your level of experience in the business or industry. If you can afford the huge investment costs that buying a business requires and you are highly experienced in the business, buying a standalone business might be the right step to take.
Your decision might also boil down to your personality as a business owner. If you can’t see yourself sacrificing the freedom to make vital business decisions, then a franchise isn’t right for you. But if you have no problems with that and prefer the security, stability, and other benefits of franchising, then buying a franchise may make more sense than buying a standalone business.