So you’ve decided to buy a business. Congratulations! It’s an exciting time, but you may have no idea where to start, what you want or what fits. It’s strange, but true: most first-time buyers tell me during our initial meeting that they want to buy a business, but have no idea what kind of business. At best, they can name a couple of industries they don’t like.
It requires a lot of experience and patience to help a potential buyer understand what kind of business will best fit him. There are many questions to be answered. One of them, on which I want to concentrate in this article, is whether to go for a franchise business or an independent, “mom and pop” business.
Each option has its advantages and disadvantages. Let’s first look at the benefits offered by a typical developed franchise.
- If you decide to buy an existing franchise business, you don’t need to reinvent the wheel; someone did it for you already. You are buying a tested model, which can save you from an expensive learning curve.
- A typical small business is owner-operated, and many potential buyers are concerned whether the business can properly and profitably continue without the owner. Often, an owner-operator’s role is so pervasive that she seems irreplaceable. This is rarely the case with franchises because the set operating structure works for a number of companies and owners.
- A franchisor offers support in many areas of your business that you may not be able to master, including by creating helpful operating and marketing programs. You won’t need to worry about things such as logos, trademarks, branding, or business plans. You will also enjoy day-to-day support, which might be important for a first-time business owner, who, for example, spent her career in a well-structured corporate world.
- A franchised system creates economies of scale with other franchisees, often leading to better discounts with suppliers.
- In addition to enjoying all the benefits of a well-established company with its own clientele, a franchise owner will also enjoy instant brand recognition in a market.
But franchise systems and operational models don’t work for everyone. There are many advantages that an independent business can offer.
- When you own an independent business, you don’t have to follow rules and standards set by someone else. You set your own rules and only the sky is the limit. Of course, there are more risks, but the rewards might be greater, as well.
- You will not be limited in the products or services you can offer to the public, and you can expand your business either vertically or horizontally in a way that most benefits your particular business in your particular circumstances, economy and location. For example, I have watched franchised frozen yogurt stores go out of business because they were not permitted to offer any other products more popular during winter due to franchise limitations.
- You don’t have the burden of high royalties and marketing fees to be paid to a franchisor for its support and programs. You also have more flexibility to manage your costs and the freedom to choose different suppliers or to optimize other costs in a way that benefits your company.
- Opposite to franchise businesses, you have full control over what you can do with your business. If you are very independent-minded and don’t like losing full control of any aspect of your business, being independent may work best for you.
Each system has its own advantages and disadvantages – its own strong and weak sides. But whatever system you choose, the most important thing to consider is what fits your personality and you personal needs best.