Starting a Business? Franchising vs. Independent Business

The decision to be self employed and join the growing ranks of  other small business owners is absolutely amazing.  Whether you’re currently employed or between jobs and considering self employment as an option, it’s  exciting.

Today there are countless ways to start a business and with determination anyone (yes anyone) can be self employed.

I’ve owned 2 franchises and have also started 2 independent companies.  I’ve seen the advantages and disadvantages to both. Before reviewing these briefly, I do want to say that regardless of which direction one chooses, you need to possess the following:

1. Motivation to Succeed! The journey of entrepreneurship is tremendous, though it doesn’t come without ups and downs.  You’ll definitely have set backs, days in-which you’ll want to quit; but it is the motivation to succeed that needs to be present to propel you to keep going.  You’ll be frustrated certain days and this is why when starting on your journey towards self employment that you should surround yourself with other entrepreneurs.   Reject all negativity from your life and have those that will be there to support and encourage you.  Attend as many networking events as possible with other entrepreneurs to discuss, listen and learn.  Try to connect with a few and build your own group that speaks regularly and are there to support one another. 
2. Passion is a Must! Some may argue that passion isn’t necessary, though its a heck of a lot easier to stay motivated when you love what you do.
3. Talent is Needed! Talent or knowledge in your desired niche of self employment is a prerequisite.  Its not that one can’t teach themselves along the way, but having the knowledge along with the passion is a formula for success. Talent also isn’t just in knowing the niche well, but its also in knowing the business of business. Hiring, supplies, customers service and so much more can somewhat be taught, but is also learned by being a business owner.
4. A Rock Solid Marketing Plan! You can be absolutely motivated, extremely passionate and tremendously talented; though if you lack a plan of how to attract business you’ll fail.  Compare an OK talented entrepreneur with a rock solid marketing plan to a super talented business person with a limited marketing plan and the OK talented, will wipe the street with the super talented. You need to have a rock solid marketing plan.  Remember it doesn’t matter how good your business is if you don’t have any paying customers.

Each of the 4 points are needed regardless of whether you are buying a franchise or starting your own business.  Passion and motivation can’t be handed to you by a franchise and you can’t strictly depend on the marketing plan of the franchise either (discussed below).  A franchise can help with teaching the talent though.

Advantages of Buying A Franchise:

1. Early on business training on starting your business.  Most franchises will have a manual with a step by step outline of whats needed to get your business open.   
2. Training that should be proven based on testing and testing more.
3. A marketing system that should be proven to have had success.  (review closely)
4. A proven well established brand.
5. Help in Choosing a Physical Location (not always)
6. Validation is by far one of the best parts of buying a franchise. You have the ability to speak with other franchise owners to learn the advantages of the franchise itself and the disadvantages. You’ll learn what a typical day is like and anything you’d possibly want to know.  This process of speaking to other franchisees is one of the most important steps and one that you should spend a lot of time on.  Do not rush through this part.

Disadvantages of Buying a Franchise:

1. Expensive ongoing Fees in the form of royalties, mandatory events you may have to attend, advertising fees and possible other charges. 
2. High Start-up cost with the requirement of Franchise fees (these are at times negotiable).
3. Forced system to follow that might not work in your area.
4. Contract obligation that may not be flexible.
5. Mandatory location requirements that may not be necessary.
6. One size Marketing doesn’t always work in every area of the country and for smaller franchises that don’t have a brand yet, a good marketing plan is needed.  Review the marketing plan closely with the franchisor and validate the franchise marketing system with ALL franchisees. When validating with franchisees make sure to call as many as you can. Call both new, old, good and those not doing well.  This will really help paint a better picture for you.
7. Forced Suppliers to purchase from. Though this can offer lower cost possibly, sometimes you may be able to find lower supply cost elsewhere.

When starting an independent business you typically don’t have the type of support you’d have when buying a franchise, though you don’t have the fees you’d be paying  with a franchise. Typically you’ll pay on average a $25,000 franchise fee (this can be more or less depending the franchise) and a monthly royalty fee based on the franchise’s  schedule.  On average franchise fees are 6% of revenue, thus a business doing $350,000 a year in revenue will pay an additional $21,000 in fees.  On top of royalties, one still needs to pay for marketing that may be done by the franchise or not.  For less well known brands this could be a higher cost for the franchisee to take on.

An alternative when looking at smaller franchises may be to see what they offer in the form of support, marketing and structure. Consider what it would cost you as a small business owner independently going out and hiring expert coaches to assist you in each of those areas. For instance a good marketing coach may cost you $5,000 a year and a business coach may cost you another $5,000 a year.  Remember now you’re saving the $25,000 initial investment and the ongoing royalties that cost you again $21k a year on a $350,000 business. That’s a tremendous annual savings. You now aren’t committed to a franchise agreement, you save on royalties and have all the flexibility you choose.

Franchising can be a wonderful opportunity for those looking to be part of a system, though it shouldn’t be the only choice. Starting an independent business can offer you great financial rewards and less restrictions. Remember that you can form your own support team yourself, similar to what a franchise may offer, yet you’ll do this at a fraction of the cost. Put the time into weighing the differences yourself when becoming self employed and remember regardless of the path you decide to take, have passion, motivation, talent and a marketing plan ready for your future success!