As you contemplate becoming a business owner, there are many decisions that need to be made regarding the best way to go about this rewarding but sometimes challenging endeavor. You will discover that there are two main options available; start your own business from scratch or invest into an existing franchise system. There are pros and cons to both business models.
Starting a Business from Scratch - Pros
- Control and creativity - Starting your own business allows you to create a system from scratch and to make all the decisions relating to your business. You are likely to have a good feeling of accomplishment once your effort is a success.
- Profitability - If the business belongs solely to you, you reap in all the profits rather than having to pay a portion in royalty fees.
- Less initial startup expense - You usually have more flexibility in finding a business that begins at a lower cost, depending on the type of business. There is also the possibility of running your business from home to save on expenses.
Starting a Business from Scratch - Cons
- More time and effort - You will be completely on your own from start to finish. You will need to gain a great deal of knowledge on not only running the business, but also on starting the business as well as all other aspects of managing a business. Included in this list is the preparation of a complete detailed business plan, the work involved in obtaining financing, and the effort in hiring good employees. You are also required to market your business to consumers.
- Competition - There is a good possibility that there will be established competition via franchised businesses in your area. You will need to differentiate your business from the others in order to build a customer base from scratch.
- Higher Failure Rates - The odds of failure are typically higher for new business startups versus buying into an existing franchise business. It is more difficult to establish a completely new concept and system.
Buying a Franchise - Pros
- Brand Awareness - A large advantage is the initial knowledge of your product or service. You will not usually have to spend a lot of effort looking for customers. This can lead to a quicker return on your investment.
- Established system and support - You have to do your research to be sure you are buying into a franchise that has been in existence with a good track record. There should be a good business system already in place for you to follow toward success. Also, the franchise organization offers ongoing management and technical support for you and your business. Therefore, if you run into any issues, they should be able to help you resolve them.
- Less competition - Since franchises are broken out by territory there should not be a large amount of competition in your area. You will be receiving rights from the franchise company to market in a particular location.
Buying a Franchise - Cons
- Fees - There are typically additional royalty fees paid in exchange for the support that is provided. Therefore the profit will not belong completely to you; but should be worth the support you are receiving from the company.
- Possibility of poor franchise choice - A great deal of research needs to be done prior to making a decision on which franchise to buy. It is important to be diligent about checking litigation history, turnover of units, and speaking with other franchisees within the organization before making the final franchise choice.
- Less freedom in decision making - Since the franchise system is already in place, you will be required to follow the setup, leaving less room for creativity and your own decision-making.
