This is a guest blog post by Stephanie Sundheimer.
There is a lot of work that goes into running a business. When you are starting from scratch, you need to consider everything from products and staffing to marketing and the legal aspects behind your brand. All that might seem a bit daunting for someone simply looking to run a business. But what if you could launch your own location using a business model that already exists? That’s where buying a franchise becomes an option you may want to consider.
But the decision to become a franchisee over becoming an independent business owner is not one that should be taken lightly. If you’re stuck trying to decide which route would be the best for you, you probably have a lot of questions on your mind. Here we will try to answer a few of them, outlining the advantages and disadvantages of investing in a franchise over launching an independent business.
How do start-up costs differ?
When you are starting your own business, you have a lot more control over where your money goes than you do when you invest in a franchise. This control allows you to cut costs in the short term in order to see a return on your investment within a realistic time frame. You can then continue to invest in your business and grow it in a steady, healthy way over time. When investing in a franchise, start-up costs tend to be more because of the supplies you are required to purchase as well as royalty fees you must pay. But in the short term, you will typically see a quicker return on your investment because franchises tend to attract an existing client base.
How does the time commitment differ?
When you run your own business, there are a lot of aspects of it that are left up to you. While this can be seen as a benefit, it also comes with a price. All of the decisions that have to be made take time to consider; all of the work that has to be completed takes energy to accomplish. Investing in a franchise definitely takes time, but it is not nearly as much of a commitment. One of the biggest factors in deciding whether to invest in a franchise or to start from scratch should be how much time you have to devote to your business.
What are the differences in terms of financing?
When you invest in a franchise, you are probably buying into something that has been proven time and time again. For this reason, getting financing for your project doesn’t tend to be too involved. When you start fresh with a new business, however, you are taking a bigger risk. This can make it more difficult to get the financing you need.
How much of a risk should I take?
Like I just said, starting fresh with a new business is a big risk. Without having an established business, brand, or marketing strategy, you have little way to judge your probability for success. While big risks do have the potential for big payoffs, they also have a significant probability of failing. Investing in a franchise is also a risk, but you typically know what you are getting yourself into. This may mean less of a payoff in the end, but it also means not having to make a big gamble in the beginning.
What should I look out for in an existing franchise?
For whatever reason, some franchises tend to develop internal issues as they expand. Whether it is an issue of public opinion or a problem with the business plan, anyone who jumps on board the franchise will have to work around it. When you start your own business from scratch, you avoid having to deal with any of this, leaving you a clean slate to work with.
This article is provided for general informational purposes only. This article should not be construed as legal advice or legal opinion on any specific facts or circumstances. Reading this article does not create an attorney-client relationship. Please consult a lawyer of your choosing concerning any specific legal questions you may have.
Stephanie Sundheimer writes on behalf of a Lansing, Michigan based law firm, Fahey Schultz Burzych Rhodes PLC, legal experts in franchise law, municipalities law, and intellectual property law.