Owning a franchise is considered a much safer investment than actually running your own business and this is why it has become increasingly attractive throughout the past couple of years. After all, you put your money into an already proven company with meticulous attention to process and vast network of industry contacts. When you add the fact that there rarely are requirements for relevant experience, the benefits of franchising seem almost unreal when compared to starting your own small business. Is that really the case with franchises and why people bother starting their own businesses, when it’s so easy to invest in already developed ideas? To find the answer to these questions and more, I explore in detail investing in franchise vs starting your own small business.
Franchise vs Small Business
With initial fees usually starting at tens of thousands of dollars per month (depending on the industry this could go much higher), it’s not hard to compare this with starting your own small business in pretty much any industry. Let’s review the advantages and disadvantages for both:
Franchise Advantages
As already mentioned, franchise benefits include a vast customer base from the start. A small business on the other hand, can take years (sometimes even decades) to grow and requires countless hours of hard work, often with no actual results at the end of the day.
Another advantage of investing in a franchise is the constant access to qualified training and ongoing support for your business. When you are a small business owner, you can consider yourself lucky if you manage to secure truly good advisors for the long run.
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Franchise Disadvantages
While with your small business you can gradually grow expenses, with the franchise the initial investment goes directly to the franchisor and is used to open the specific location you invested in.
In addition to the initial franchise fee, you are usually required to pay on going royalties and for advertising campaigns of the brand.
Another main potential disadvantage of investing in a franchise involves the ability to manage the business, as well as the often numerous restrictions applied by the franchisor (these often include specific lists with items offered, geographic locations served and item/service pricing). In a scenario where some unforeseen problem causes the franchisor to experience financial difficulties, the franchisees are often the ones who pay the bill. While this scenario doesn’t happen very often, cases of franchise investors lost their money are not something rare.
Conclusion
It’s hard to argue that investing in franchise carries much lower risks than starting your own small business, but it’s worth clarifying that it’s not a sure-fire win – you will need to have the same attitude as running your own small business, with rather limited management control, but access to vast resources and very qualified mentors. As a business owner myself, from my perspective starting out as an entrepreneur with a franchise business investment is a great way to meet and learn from amazing people, which will potentially help you skyrocket all your future business ventures, as well as your franchise. However, bear in mind that like every successful investor out there – you need to take time and do your due diligence to ensure that your investment is safe.
