Franchise vs. Your Own Business: Which One is the Best for You?

Buying a franchise and owning your own business each have their own merits and each carry their own associated risks. The question of which one is best for you is a highly individual process, one that should meet with a highly individual answer.

Franchise

A main attraction of a buying a franchise is the brand recognition and the use of trademarks, recipes, etc., and the often built-in customer base that comes with it.  Another is the ongoing training and support from the franchisor.

In exchange for these rights, a franchisee is typically required to pay both an initial license fee and ongoing royalties. It is typical practice for these royalties to be paid based upon sales, not profits. So even if a franchise is not profitable, the franchisee is still required to pay a royalty to the franchisor.  Franchisees are also expected to conform to all the franchisor’s rules. That might mean restrictions on when or where one can conduct business, the appearance or design of an establishment, and the types of products or services that may be sold.

It is also important to understand that franchise rights are for a limited time: they may or may not be renewed. In addition, terms from the original franchise agreement may be changed by the franchisor, and it is possible to lose the right to a franchise due to breach of contract.

Owning Your Own Business

For many entrepreneurs, the concept of owning one’s own business seems ideal:  You can be your own boss, set your own hours, etc. Depending on the nature of the product or services, a start-up company typically has more freedom than a franchisee when it comes to making decisions about location, advertising, hours, etc.

The reality is that the hours sometimes dictate themselves and there are often complexities that may not reveal themselves until after someone has operated the business for a while. Compared to a franchise, establishing a new brand and competing for share of a particular market often requires a greater amount of resources.  Although there may be training and advice available from small business associations, it can be more difficult to negotiate necessities such as financing for a start-up company with little to no track record.  However, because the business is solely owned by an individual, so too are the profits.

There is no one-size-fits-all business model, and if anything, that simple fact stands as a testament to the viability of a free market economy. Similarly, there is no substitute for asking detailed questions of a number of entrepreneurs who are either involved in a franchise or who own their business. The time you invest in researching your options may be the best investment you can make toward ensuring the success of your business.