Business

The Pros and Cons of Starting a Business vs a Franchise

Chloe Harwood
Written by Chloe Harwood

Once you’ve decided you don’t want to work for an employer for the rest of your life, the next step is to determine what business model to follow when you set out on your own.

Many aspiring entrepreneurs find themselves in a position where they must decide between a startup or a franchise.

Both startups and franchises have their advantages and disadvantages. Deciding which model is right for you can be daunting. The best way to determine whether you are more suited to franchises than startups or vice versa is to know your own life goals, strengths, and skills.

With this knowledge at hand, the next step is to investigate the pros and cons of starting a business vs a franchise. Only then will you know which one is going to work for you.

Pros of a franchise

  • Proven track record – Franchisees know what they buy into. If you’re a careful entrepreneur, it offers you a tested model for running a business.

Of course, some franchises are more successful than others. But if you do your homework and buy into a well-established franchise with a proven track record, business success is almost guaranteed. This is regardless of whether you’re starting a new franchise or taking over an existing operation.

Franchisees operate under a uniform system that has been tried and tested. It allows the franchise owner to concentrate on more important things than setting up accounting and other administrative systems.

  • Established brand – In most cases, a franchise comes with a well-known, established brand. They know if they buy a Big Mac in London it should look and taste the same as one coming from the Manchester franchise.

The advantage of buying a franchise with an established brand is that you’re ready to start making money from day one. It eliminates the process of introducing a new brand to customers, which can take months and even years to catch on.

Branding material is part and parcel of a franchise agreement. All that remains for the franchise is to ensure it’s visible and used according to the franchise guidelines.

  • Corporate support – New entrepreneurs especially benefit from this advantage of buying a franchise. Generally, this involves extensive training even before they open the doors to their new business. This can include product training, a marketing course, guidelines on dealing with staff, and tips to deal with general day-to-day business matters.

This initial support is ongoing. Franchisees who run into trouble or who don’t know how to deal with a certain matter, can simply pick up a phone or send an email for help. If the franchise makes money, the franchisor makes money. Therefore, there is a big emphasis on ongoing corporate support.

Cons of a franchise

  • High fees – Franchises, especially well-established, successful ones, don’t come cheap. There is an initial purchasing fee which can be quite substantial. Most aspiring entrepreneurs don’t have this kind of money just sitting in their bank accounts. They must either find investors or convince a bank to give them a loan.

Also, franchise fees don’t end with the initial purchase price. There are ongoing fees, called royalties, for the use of the brand and accompanying operating system. Royalties can be fixed and paid periodically or they can be based on a percentage of sales. However, keep in mind not all is lost since the franchisor should use some of this money to provide support to the franchise.

  • No flexibility – As a franchise, you are restricted to a common brand and operating system. If you don’t follow the rules set out by the franchisor, you can even lose your franchise license.

Tired of the brand material provided by the franchisor? Tough luck. Thinking of expanding or changing the product line? There’s no way without the approval of the mothership. If the franchisor says you must be open on Christmas Day, that’s how it’s going to be even if you must get your family to fill in for staff who want the day off.

Some entrepreneurial personalities will find this very frustrating. The other disadvantage of the predictability of a franchise is that boredom can set in quickly.  

  • Less control – While there’s no reason to believe you’re not 100 % in control of your franchise, the fact remains that it’s under certain conditions set by the franchisor. You may be your employees’ boss, but are you your own boss?

The fact that the franchisor may intervene or prescribe to you can be too much to handle for people who “don’t like working for a boss”. It takes too much control away from entrepreneurs who want the personal freedom to do what they wish.

Pros of a startup

  • Professional freedom – Running your own business gives you the professional freedom to do what you want when you want to do it. Depending on the type of business, you can also work from anywhere you like. The main thing is that the job gets done.

Some entrepreneurs are challenged by the higher risk and problem-solving opportunities that come with the professional freedom of starting your own business. They need the freedom to be innovative and creative. They don’t want to answer to anyone but themselves.

Startups can begin with a simple idea with the potential to turn into a million-dollar business. Who knows, it may even become a franchise one day. The sky is the limit with high risk equalling high return.

  • Lower startup costs – It’s significantly cheaper to set up your own business than buying a franchise. Therefore, in terms of initial outlay, a startup is far more economical. You can get away with starting a business at 5 % to 10 % of what investing in a franchise would cost you.

It’s possible to structure the costs of a startup around your available resources. If you don’t have money to rent an office or a workshop, you can work from home or even a shared commercial space. If you need expensive equipment, you can start small by purchasing the basics until you’ve made enough money to expand.

  • Operational flexibility – Starting your own business makes you the boss in every way. Unless you have major investors to answer to, you run the show completely.

An entrepreneur with a startup controls all aspects of operating his or her business – what the business hours are, whether and when to employ more people, what product or service to sell, and what operating system to use.

Cons of a startup

  • Greater risk of failure – Unfortunately, more startups than franchise businesses fail. In fact, a big percentage of startups fail, with statistics showing only 75 % make it past the first year. Half of the remaining startups fail within the next 4 years, and 30 % of what is left after that don’t last 10 years.

For your business to survive, you will need to make sacrifices. This means long, hard hours. You won’t always have support and you’ll make mistakes along the way, but the secret of most successful entrepreneurs is that they don’t give up after one or two failures.

  • Brand development takes time – Unlike a franchise owner who gets an established brand with his business, a startup owner must develop and build a brand from scratch. This is no easy task.

Building a brand goes hand in hand with establishing a market niche and developing a client base. This doesn’t happen overnight. Sometimes you even take a step back when there is a need to make changes.

If you don’t wholeheartedly believe in your product or service, it will be hard to stay committed to developing your brand. Even if you are in it with your heart and soul, you’re going to need a lot of patience and determination before you see results.

  • No support from a mothership – Startup owners have no-one to turn to for help if they have a bad day, or week, or even month. While family and friends may try to encourage and offer advice, it’s not nearly as substantial as the corporate support given to franchisees.

When you start out on your own it’s important to remember you’re going to have to rely on yourself to make it work. That means figuring out the best business model, accounting system, managing your own marketing, and staying within budget.

However, it will all be worth it once you’ve made your big breakthrough and can pay for support as you need it. For example, www.qualitycompanyformations.co.uk can offer invaluable support when it comes to registering your company.

No-one except you can decide whether you want to be a franchise or a startup owner. You owe it to yourself to take some time to figure out which option fits your personality best. The pros and cons of starting a business vs a franchise are clear. Which one is it going to be for you?

About the author

Chloe Harwood

Chloe Harwood