Starting A Business Vs Buying A Franchise: How To Choose One

Buying a franchise and starting a business can both give an aspiring entrepreneur long-term success and handsome profits.

However, it is pivotal to consider each model’s pros and cons and scrutinize them against each other to make a viable decision.

What is a Franchise?

A franchise is a business that allows you to operate using their name, trademark, expertise, and business operations as your own. The process of buying an existing franchise requires the signing of an agreement by paying the franchisor a franchise fee and ongoing royalties. That enables you the right to use their name and operation systems as your own. Some renowned franchises include:

• KFC
• McDonald’s
• 7-eleven,
• Century 21
• Pizza Hut
• Dunkin Donuts

Let’s now take a look at the advantages of buying a franchise that may outweigh the pros of starting a new business from scratch.

Pros

One of the significant benefits of buying a franchise is settling into a business with brand recognition, successful operational procedures, and a loyal customer base. Unlike starting a fresh start-up that requires strong marketing and promotional campaigns for your business success, a franchise already has a renowned brand name, diminishing the need to develop any marketing tactics.

Just take Mcdonald’s as an example. Since this giant fast-food chain is renowned globally, it has an established customer base who trust it blindly with its products and services. As a franchisee, you do not have to sweat over how you would make the brand visible to people’s eyeballs and gain their trust. You will also get ongoing support and can take advantage of various existing resources. Franchises guide franchisees with selecting locations, training staff members, and successfully implementing other business strategies.

Buying a franchise allows you to skip many facets of the start-up stage, such as writing a business plan, conducting market research, as the system is already tried and tested with a proven track record of success. More importantly, securing financing for a franchise is a lot simpler than for an independent start-up of your own due to the stringent eligibility requirements.

Cons

Even though buying a franchise can be a profitable venture, there are a few disadvantages to it. For one, there is a lack of independence. You will have to follow and abide by the tools and systems given by the franchisor.

While you will have a certain amount of autonomy in running the business, you will have to follow the rules, regulations, and system operations as provided by the franchise. Even if you deem any strategy to be unfit, there is no recourse.

Another significant drawback of owning a franchise is the high start-up costs associated with it. If you are contemplating buying a franchise, you can visit https://www.franchise.com to find out its cost. Some franchises, such as Mcdonald’s, may cost up to $1m and be entirely out of your reach, and even if you can afford to pay for them, they will take up a significant chunk of your liquidity.

You will also have to pay ongoing royalties to the franchisor based on the sales, which can take away a chunk of your profits.

Starting Your Own Business

As thrilling as starting a new business sounds, it can be quite daunting too. While you will be able to exercise complete control and get to call all the shots with your own business, there is also a massive degree of risk involved with no certainty of success. Just like buying an existing franchise, there are several pros and cons that you must weigh in before deciding to start a new business.

Pros

Having your own business can be incredibly rewarding as one could always pride in hard work. The most significant advantage is that you have the freedom to make and implement decisions as per choice and be your boss. Building a new business enables you to establish a brand name and logo by yourself, choose the location, hire employees and set operational hours as deemed fit. It will also allow you to be in control of your sales and advertising strategy. Also, when starting a business and forming an LLC – it will also protect your personal assets and separate you from the business entity.

Cons

The major drawback to starting your own business is figuring out every detail on your own as you are starting from the ground up. Unlike buying an existing franchise that does most of the work like securing finances, providing mentoring and management, operating a business requires creativity. You would need to create and grow a brand name, use effective marketing strategies to catch people’s attention, find suppliers, and hire workers, all on your own. You will have to ensure that you have enough capital or potential investment to run the business in its development phase while maintaining a positive cash flow.

While a franchise is already known and trusted by the public and communities, a company starting from scratch may encounter various obstacles in building a solid customer base and gaining a good reputation. There is more risk involved with starting from the ground up, as it is not an established business model and has no proven record of success to replicate.

Now that you have a better idea of the various pros and cons of starting a new business and buying a franchise, we hope you have a clear idea of what to choose.

While there are advantages to both, the benefits of acquiring a franchise certainly outweigh starting from the ground up.