Should You Buy A Franchise Or Go It Alone?

By Bigg Success Staff
02-07-08

Bigg On Small Business

 

So you want to be in business FOR yourself. But you’re not sure you want to be in business BY yourself. You want to know if you should buy a franchise or go it alone. In the end, only you can make that decision by understanding the advantages and disadvantages of pairing up with a company that offers franchises (“franchisor”).

Most franchisors today offer business-format franchises – you buy an entire operating system, not just the rights to distribute a product or license a name. So we’ll focus on business-format franchises in our discussion today.

Advantages of buying a franchise

• Proven concept
  A good franchise system has been proven. They have units in place. The kinks have been worked out. Consumers have voted with their dollars. Owners are earning a good return on their investment of time and money.

• Recognized brand
  A good franchisor makes a bigg brand available to small business people. They have a trademarked name, logo, slogans, identification materials, and more. You don’t have to spend time and money building a brand; the franchisor has done it for you.

• Proven systems
  With a good franchise, you get a complete operating system. They have tested how to produce their product or service in the most efficient way. They continue finding new ways to improve their operations through scientific testing and measurement.

• Proven promotion
  Along with proven systems, a good franchise has market-tested advertising in place. As a franchisee, you participate in effective advertising campaigns developed with the resources of a bigg company.

• Training
  A good franchise system trains you and your staff to run your business profitably. You’ll probably be required to complete extensive training upfront. You’ll likely be obligated to update your training regularly. You’ll have training programs for your employees, as well, so they get to the top of the learning curve quickly.

• Ongoing support
  With a franchise, you are the local branch manager of a large chain. You’ll get support from your parent company on an ongoing basis. You’re also part of a club – other franchisees who are motivated business owners just like you. Since you don’t compete with each other, you can share tips on how to be more successful.

• Buying power
  A good franchise organization brings economies of scale to you. Because they buy in volume, you’ll often get significant discounts on essential products and services.

• Site selection
  A good franchisor can help you research markets to determine the best place to locate your business. Beyond that, they can help you select a specific site within that market that has the traffic you need to succeed.

• Store design, construction, and layout
  Consumers today are looking for an experience. With a franchise, you get a proven store layout that maximizes your sales through effective sales psychology. In many cases, they can also help you get the store built.

• Benchmarking
  A good franchise system delivers critical numbers to you so you know how you’re doing and where you need to improve. This will help you tweak your operations and give you goals to achieve.

• Marketable asset
  When you’re ready to move on, a good franchisor may help you find a buyer. They are constantly fielding calls from people interested in getting into their system. Your business will likely be easier to sell if it’s part of a large franchise system.

• Less downside risk
  Research on the success rates of franchisees shows mixed results. However, these studies look at the entire spectrum of franchise organizations. If you do your research, you can find a system where your risk is less than going it alone.

Disadvantages of buying a franchise

• Start-up costs
  All of the benefits listed above don’t come without a cost. You’ll have to pay an initial fee to become part of any franchisor’s system and start reaping the benefits. This fee may be offset, in part or in whole, by the discounts you get on purchases through their system.

• Ongoing costs
  You’ll be required to share a percentage of your sales or pay a fixed monthly fee. You may also be required to participate in system-wide endeavors, like coop advertising. You’ll likely be required to adhere to certain operating standards, which will cost you money.

  Hopefully, these costs pay for themselves (and more) through your volume discounts and an increased value-perception in the minds of your customers.

• Partnering problems
  When you’re part of a franchise system, their image is your image. A customer from your city may have a bad experience with a franchisee in another community. So they won’t patronize your business. That’s why good franchisors maintain such exacting standards.

  If your franchisor runs into trouble, financially or otherwise, you may be hurt as well. Whatever happens to the chain as a whole, for good or for bad, will likely impact you. Make sure your franchisor is financially sound before you sign on the bottom line.

• Lower upside return
  If you have less risk, you often accept less return. You’ll have the additional costs discussed above. You may also have less opportunity to grow your business – you may be restricted to a certain territory in which you can market or operate.

  Keep in mind, you can always buy additional franchises. Many franchisees have become bigg businesses in their own right through owning and operating multiple locations!

• Loss of creative control
  Mavericks need not apply! When you buy into a franchise system, you are agreeing to use their system, not yours. You can make suggestions on how to improve it, but they decide if you can implement it.

  This is perhaps the biggest disadvantage to buying a franchise. Some people just can’t be happy under these circumstances. They don’t make good franchisees.

A business-format franchise is an “instant business” – just add capital and start! You can’t get more turn-key than that. There are many advantages to buying a franchise. There are a few disadvantages. In the end, only you can determine if a specific franchise opportunity is right for you, or if you should go it alone!

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(Image by Eric Skiff, CC 2.0)