A franchise or an independent business – which is best?
Originally posted on 03/12/2017. Updated on 04/06/2019.
Many of us dream of being our own boss at some point in our lives. But why do most of us never fulfil our dreams of business ownership? Fear of failure, inadequate resources and uncertainty as to which business to start are all contributing factors.
For the brave, starting a business can be rewarding and exciting, but how do you decide what type of business to start? Is buying into a franchise the best decision or does an independent venture provide the best results?
Ultimately, the answer to this question will differ from person to person. The choice you make will depend upon your personal circumstances and the business goals you want to achieve. There are advantages and disadvantages to both business types and the key differences between them need to be considered before you make your decision.
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Should you invest in a franchise or an independent business?
Before you start your new business, you should work out whether, based on your personality, you’re more likely to succeed with a franchise business or an independent one. When you understand the differences between the two business models and have made your decision, consult franchise professionals, as well as family and friends, to confirm that it is the right route for you.
5 Factors to Take into Account When Making Your Decision
1. Business model
The franchise business model has many benefits for franchisees: the recognition that comes with an established brand; help with finding the perfect site; reduced costs of group purchasing; initial training and ongoing support; use of a proven business model; and marketing support. Of course, there are downsides too. The biggest negative is the lack of independence for franchisees. From the products and services being sold to the business’ opening hours, the franchisor is ultimately in control.
This does not apply to independent business owners, who have the freedom to change what, when and how they sell their products and services, depending on performance. This autonomy can be empowering, but it should be remembered that independent business owners make decisions on a trial-and-error basis – and it is inevitable that they will make mistakes along the way.
So, although the franchise business model can limit franchisees’ independence, it also provides the peace of mind that comes from being part of a larger organisation with a proven track record.
Entrepreneurs are often put off by the seemingly expensive upfront costs of buying into a franchise. These costs include the franchise fee, which gives the franchisee the rights to use the business’ brand name, trademarks and business systems. Once the franchise is up and running, there is often a royalty fee and marketing fee which are payable monthly as a percentage of gross sales.
Some franchises also require franchisees to have the funds to finance the business during its first few months. These added costs can be overwhelming, but it is often easier to secure funding from lenders if you buy into a franchise than if you are starting an independent business, as franchises have a proven track record of success.
If you have a limited budget, there are plenty of low-cost franchise opportunities available. For more information on this, check out our rundown of the top 5 franchises that you can start for under £10,000.
If you are establishing an independent business, it can be difficult to budget for the start-up costs, as there are so many unknowns. Owners get full control over how their business looks and where it is located, but they’re also responsible for funding, designing and renovating the site, ordering equipment and stock, and organising marketing campaigns to build brand awareness. The uncertainties associated with independent businesses can cause banks to be more hesitant to finance the venture, as there is no guarantee that the business will be profitable.
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If you’re concerned that you lack experience of business ownership and management, a franchise could be the ideal model for you. When buying into a franchise, you’re “in business for yourself, but not by yourself”. This is an attractive concept for new entrepreneurs who value the support, advice and guidance provided by a successful franchisor. Having the safety net of a proven business model can take a lot of the stress out of starting a new business.
Independent business owners don’t have a tried-and-tested business model to fall back on or the support of a franchisor. However, they are in complete control of their business. Some entrepreneurs feel their personality is not suited to following someone else’s rules and are willing to take the riskier route to business ownership.
4. Brand awareness
Most franchisees benefit from the use of a recognised brand name and, therefore, a ready-made customer base. Normally, each individual franchisee will contribute to the business’ marketing fund, enabling the franchisor to invest in national advertising campaigns, as well as local marketing operations. Of course, independent business owners are unlikely to have the funds to do this, so they may have to invest quite heavily in marketing activity to develop and grow the brand.
However, there are disadvantages to significant brand awareness too. To a certain extent, customer perception of the business is out of the franchisees’ hands. If the franchisor or another franchisee does something to put the brand into disrepute, all franchisees will suffer the repercussions.
The statistics regarding franchise success rates vary hugely. There does seem to be evidence that franchise businesses enjoy higher levels of success and longevity, and this is likely to be down to the support that franchisees benefit from throughout their franchising journey.
There are many franchise and non-franchise options available, but you should focus on what franchising can do for you – and your family. If you crave control over all elements of your business, a franchise probably isn’t right for you. However, if you prefer the stability and support of the franchise business model, you could find that franchising is perfect.
Most importantly, you should carry out significant research before you embark on any business venture. Make sure you thoroughly investigate any franchise business you are interested in and compare your findings to the idea of starting a business from scratch. Consult legal, financial and franchise experts so that you have the ability to make an informed decision.
What Point Franchise Can Offer You
Here at Point Franchise, we take franchise opportunities and make sure they find their way to the right entrepreneurs, so let’s conclude with a few reasons why franchising is a fantastic way to start a business, all taken from the BFA-NatWest survey.
- The viability of franchises is demonstrated by the increasing popularity of the model. For example, the number of franchise units in the UK has increased by 14 percent in the last ten years to around 44,000, and the number of people employed in the franchising industry has risen by 70 percent, to equal over 620,000. This has contributed to an increase of 46 percent in the value of the industry; it generates around £15 billion for the UK’s economy.
- The statistics are promising for entrepreneurs who invest in a franchise unit. 97 percent of franchisees are making a profit from their venture, and more than half make an average revenue of over £250,000.
- Once franchisees have chosen and been accepted by a franchise, they tend to stick with the business for the foreseeable future. Just 4.6 percent of franchise business owners decide to sell it and move on, while the remaining 95.4 percent are satisfied with the results of their chosen franchise over time.
- The franchise model is so cost-effective that many franchisees decide to develop their business after launching their initial unit. In fact, 29 percent of franchisees have opted to manage multiple franchise units. This means almost a third of franchisees benefit from the increased profitability that comes with a second, third or fourth branch of the same franchise in a given territory. In turn, this will also increase brand awareness in that area, which can only serve to boost sales in the long run.
If these statistics speak to you, take a look at Point Franchise’s directory, which lists all the fantastic opportunities currently available for savvy entrepreneurs. This is the first step to opening a profitable franchise in your chosen territory and becoming your own boss.
Alice Tuffery, Point Franchise ©
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