Starting a Business: Franchise or Independent Ownership?

Any entrepreneur interested in starting a business faces one very important early decision: purchase an existing franchise or create a new, independent business?

There’s no right answer across the board, and even for individuals, it’s possible that either option would be a success. But the decision can be better informed by considering the factors that influence it, such as personality, market conditions and availability of resources. Here are some of the critical elements that make a big difference at the outset of a business venture, as well as some of the pros and cons of these two different business models.

The Franchise Model

If not necessarily simpler, a franchise model may offer a more straightforward path. Engaging in a franchise enterprise means buying into a branded turnkey business with multiple, consistent locations.

Depending on the size and marketing efforts of the franchise, an operator may enjoy widespread customer awareness right out of the gate, which can help to free them from costly marketing activities and allow them to focus on other key business-building activities. On top of that, operators generally encounter lower upfront investment costs, despite an initial licensing fee and ongoing royalties that are part of the franchise program.

Typically, new franchise owners enjoy access to a wide range of operational resources that are crucial to getting an enterprise off the ground, including a proven business system, administrative support from the franchise’s corporate office, an established supplier network, and sales and marketing guidance. Because they’re working within an established model, operators typically see a faster return on investment than an independent business owner.

But even in the best of circumstances, franchise operators face some crucial challenges. Brand awareness can be a double-edged sword — you enjoy the positive publicity when things are going well, but you may also encounter criticism for decisions or problems you’re not responsible for.

Franchise operators will also sacrifice significant autonomy since many high-level decisions are made before they’re involved. Products and services are already determined, along with their corresponding price structures, and the marketing message is typically well-established beforehand. Most of a franchise’s internal structure is in place; therefore, a new operator isn’t at liberty to make any significant changes.

By and large, if a franchise operator wants to embark upon big picture alterations, they should probably look at another business model altogether.

Going Independent

An independent business owner enjoys total autonomy from day one. They get to set up their new enterprise as they see fit, with control over everything from office space and marketing to hiring and branding. Without franchising or royalty fees, they also choose what they’re willing to invest in the project. It’s the ideal route for an individual who wants to make their own mark, without any strings attached.

An independent business owner enjoys all of the success of the business but they also have to own the challenges and the setbacks. Independent ownership typically doesn’t come with a safety net. Whether it’s success or a bump in the road, business owners should be prepared either way.

A new business typically has little or no brand recognition. Nobody knows anything about your products or services, so there’s a greater emphasis on getting the word out. On top of that, in the early stages of a business, you may not have any administrative or operational support — every decision is yours, but so is every responsibility. Up-front expenses can seriously affect your cash flow and ROI, and you’ll need to be prepared to be patient before profits starting rolling in.

What’s Best for You?

When deciding between independent ownership or a franchise operation, it comes down to understanding yourself and knowing what you want out of the experience. Take time to research the various opportunities, draw up a draft business plan for each of them and then make the most informed decision that you can before embarking on this exciting new phase in your professional life.

Lee Polevoi
Lee Polevoi
Lee Polevoi is a veteran freelance business writer specializing in exploring the opportunities and challenges facing small businesses in the U.S. today. A former senior writer for Vistage International (a global membership organization of CEOs), Lee regularly produces articles, white papers, blog posts and more for the diverse small business audience.

See all posts by Lee Polevoi
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