How is a franchise different from other small businesses?
Business franchising isn’t for everyone; many would-be entrepreneurs prefer to start a business from scratch. Both franchising and starting a new business have benefits and disadvantages, and being a business owner in any capacity is risky.
Here’s a look at how franchising differs from starting a new business:
- Franchises have less freedom. Starting your own business gives you the freedom to make every decision, small and large. This freedom allows you to create your vision, but it can be overwhelming. With a franchise business, you have less freedom but more support. You sign an agreement outlining all conditions. You receive the tools, support and structure to run the business as laid out by the franchisor. Franchisees usually lease all necessary equipment.
- Franchises enjoy instant brand awareness. When you start a new business, you’re tasked with building a brand according to your vision. Brand building can be challenging but rewarding. When you open a franchise, you enjoy instant brand awareness. Your brand is established; however, you don’t have the freedom to tweak it to your liking.
- Franchising startup costs can be high. Starting a new business and opening a franchise both require significant monetary investments. Business startup costs can range from a few thousand to tens of thousands of dollars. Franchise funding can be pricey; you’ll likely need to secure a loan or line of credit to cover franchising fees and real estate costs. However, you may be able to use your franchisor’s investor relationships to secure funding.
- Franchise business operations are standardized. Day-to-day operations are different for franchises and original small businesses. Franchises are meant to be the same regardless of where you go; think of the Subway or Chipotle assembly-line meal-creation format. A small business doesn’t have to follow any specific format and can operate how the owner wishes.Franchises have a large pool of buyers. If you want to sell your independent small business, you can enjoy significant profits if you find the right buyers. Selling a franchise means you’ll have a larger customer pool that wants to benefit from the brand name. If a franchise owner can’t find a buyer, the franchisor may be willing to buy back the operation. However, an independent small business owner may be out of luck if they can’t find a buyer.
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