Should I Buy a Franchise or Start My Own Business?
Are you considering quitting your job and going out on your own? Great! The next thing to decide on is whether to go with a franchise or to start your own business from scratch. Both methods have their pros and cons, and only you will know which is the correct path for you to obtain financial independence.
While we can expound upon the benefits Franchise Owners experience all day, it’s important to admit that franchising isn’t for everyone—especially for people who aren’t able or willing to follow the sometimes-stringent rules that come with franchising. Read on to learn about which option is right for you as we explore the benefits and drawbacks of both methods.
Pros of Franchising
Continuing Support – Franchises want their Franchise Owners to succeed, and when you franchise, you’ll be joining a network of business owners who were in the exact same shoes as you. This support can help you overcome obstacles that come with running your own business as well as providing guidance on everything from streamlining your work process to hiring employees. This support is invaluable to many Franchise Owners, and something you won’t find when starting your own business.
Less Risk – One of the main things people love about franchises is that they’re joining a proven system. For example, no matter where you go in the United States, all McDonald’s locations are going to have a nearly identical menu, uniforms, and layouts. The reason? All these things are proven to succeed. Customers will go to your franchise because they know what they’re going to receive at your store.
Even the Raintree brands that pride themselves on uniqueness and individuality, such as Shuckin’ Shack Oyster Bar and Voodoo Brewing Co., are careful to incorporate certain elements into each location that have been proven to work, ensuring that new Franchise Owners will be set up for similar success in their new locations.
You also won’t need to worry about creating new content or products; everything from Franchise Owner training to your menu, products, or services will follow the same guidelines as every other franchise location.
Finally, franchises are less likely to fail than small businesses, thanks to the strength of their business model and stronger brand identity in their market.
Cheaper Initial Costs – While franchises do have fees associated with them (more on that in a minute), they tend to have lower startup fees. You won’t need to worry about paying employees or third-party services to create marketing materials, guidebooks, or even décor because the franchise will already have it created. If you purchase a pre-existing franchise, everything will most likely be included in the purchasing price, potentially saving you thousands. You’ll also find that banks are usually more willing to lend to potential Franchise Owners over start-ups due to the decrease in risk.
Cons of Franchising
Binding Legal Agreement – When you sign a franchise agreement, you agree to abide by a number of rules, ranging from what décor you use to where your business can be located. If you don’t abide by this agreement, you can lose your franchise. On the plus side, this agreement also entitles the franchise to provide you with things, from marketing materials to uniforms, which can save you money, time, and resources.
Less Creative Control – When you own your own business, you can do whatever you want with it, down to picking the napkin colors. If you don’t want to follow the rules or need to control every aspect of your business, a franchise isn’t going to be the right choice for you. You will need to follow the guidelines set forth by the franchise, and most are going to have little wiggle room when it comes to following their rules. Some people can find this stifling and are more likely to thrive if they can control multiple aspects of their business.
Fees – Franchises charge fees on top of other initial investment expenses including construction, buildout, furnishings, and inventory or materials. You’ll first have a franchise fee which can vary from a few thousand dollars to seven figures, depending which franchise you choose and how many territories you secure.
On top of this, you will need to pay monthly royalty fees to the Franchisor- a percentage of your gross profits, ranging from 4-12%. While these fees are low, you will have to pay them as long as you have the franchise. If your location is extremely successful, you may find yourself parting with hundreds of thousands of dollars a year in franchise royalty fees, which can feel disheartening. (On the other hand, there’s a good chance you may not have been able to earn that much revenue in the first place with a startup business of your own!)
Pros of Starting Your Own Business
Unbridled Creativity – Your business is exactly that: your business. You can do whatever you want with your business being you own it. If you are extremely creative and have a vision you want to execute, you are completely able to. This can be a huge plus for people looking to add innovative equipment or merchandise to their business.
Absolute Freedom – Franchises require specific work environments, décor, uniforms, and guidelines. Every minute detail is planned to the “T,” and this can be a turn-off for a lot of prospective business owners. With starting your own business, you can work wherever you want, when you want. You don’t need to report to anyone or follow someone else’s rules. As far as finances, you’ll be able to grow your business as large as you’d like. Want an international conglomerate? That’s simply not possible with a franchise. Finally, you can form relationships with vendors you want to use and trust, rather than having to use suppliers the franchise demands you utilize.
No Fees – Giving a mother company a percentage of your profits every month/year can be a hard sale. After all, you and your employees are doing the physical work. When you own your own business, all the profits belong to you and your company.
Cons of Starting Your Own Business
More Risk – For starters, banks are usually less likely to lend to those looking to start their own business versus those applying for a franchise. This is simply because franchises offer a tried-and-true method that doesn’t require any trial and error. With your own business, you will need to prove your concept and hope that the public accepts it. It’s also important to note that 50% of start-ups fail within the first five years.
No Initial Mentorship – Most people who start a business simply do not have an outside support system full of experienced business leaders to guide them through their ups and downs. You may find an outside group, like your local Chamber of Commerce, with local business owners;
however, very few of these owners will be in your industry and those who are in your industry will be your competition. Many business owners find mentorship to be one of the most important resources for business growth.
More Work – When you become a Franchise Owner, everything you need to run your business is provided to you. When you start your own business, you need to build everything almost completely from scratch. This results in hundreds of hours of planning and purchasing to get your business off the ground, and many potential startups discover they simply cannot secure the capital they need to make all of their initial goals a reality.
We hope you found this guide a helpful starting point for choosing which business model is the right decision for you. Deciding between becoming a Franchise Owner or starting your own business is a big step, and both options have their pros and cons. You should consider starting your own business if you want more creative freedom; however, if you are willing to follow directions and want lower risk, then a franchise is most likely the right option for you. Not sure where to start looking for an excellent franchise opportunity? We’ve got a few excellent brands to recommend. Check out the full roster of Raintree franchise brands here.