Entrepreneurs have many decisions to make when starting a new business. One of them is whether to choose the franchise route or start from scratch.
With a franchise comes ongoing support in operations and advertising. You'll also have a known brand. But with a solo startup, you'll be able to call all the shots. What are the good and bad of each?
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Franchise Pro: Franchise Ownership Security
The pros of franchising are numerous. One pro is the lower risk of teaming up with a brand name. The franchisor has brand recognition. This legitimizes the franchise business immediately.
The franchise business model lets the franchisee use the franchisor's name. This franchise model establishes name recognition from the beginning.
With brand recognition comes security. Entrepreneurs don't have to worry about teaching the consumer about their business. Instead, the potential customer knows what the business is.
Franchise Pro: Ongoing Support
A successful business needs support. A franchise owner receives ongoing support from the franchisor. This starts right at the beginning. A franchisor will conduct market research into the prospective franchise location.
Other franchising pros include designing and implementing advertising plans. The franchisor wants to make sure the franchisee has a successful business. Because of this ongoing support, the franchisee has a lower risk of failing.
Franchise Pro: Buying Power
One of the larger expenses a franchise owner has is purchasing supplies. This is especially true if the franchise business is a fast food restaurant. A franchisor has buying power. This brings down the overall cost of the franchise business.
Franchise Con: Initial Startup Costs
There are also some cons of franchising. A potential franchise owner needs to be aware of these. There is usually a significant startup investment in a franchise business.
The initial franchise fee can be thousands of dollars. For instance, McDonald's initial nonrefundable franchise fee is $45,000.
Many franchisors require a minimum amount of liquid assets outside business loans. That means you need money in the bank without business loans before they'll even talk to you. Your initial investment could run into the millions.
Franchise Con: No Privacy
One of the cons of buying a franchise is the lack of privacy. For example, you are required to share all your financial information with the franchisor.
Franchise Con: Inherit Franchisor Problems
Your reputation is intertwined with the franchisor. If something happens to the franchisor, it affects your business. For instance, Subway had a problem with its spokesperson participating in immoral activities a few years ago. The fallout to Subway's reputation affected its franchisees.
Entrepreneurs who opt for a franchise business are also reliant on the financial stability of their franchisor. So if a franchisor has problems, it trickles down to the franchise business.
Solo Pro: Total Autonomy
Entrepreneurs can have an independent business by going solo. It's hard work, but they are their own boss, and they call the shots. Part of that is designing their business the way they want. So, right down to the signage, they have an independent business that is all theirs.
There is usually a significant startup investment in a franchise business.
Solo Pro: Keep all Profits
One of the cons of franchising is paying royalties to the franchisor. When you go solo, all the profits go into your pocket. There is no sharing.
Solo Pro: Choose Location
The franchisor chooses the franchise location. When you're solo, you can build or rent wherever you want. You may do a better job of site selection since you know the area. This flexibility adds to the autonomy you'll have with your startup.
Solo Con: Training Lack
With a franchise business, you don't need to be an expert. One of the perks of a franchisor is training you and your employees.
The training is ongoing. When there are new procedures or products, you can rely on your franchisor to help. If you are solo, you must develop and implement your own training program. This is time-consuming and expensive.
Solo Con: Establishing Brand Name
Brand recognition is imperative when running a business. When you start a solo business, you're not a known entity. You're working from the ground up. Your brand name needs to be advertised with the budget coming solely out of your pocket. It'll take time to establish.
Solo Con: No Initial Customer Base
You'll have to start from scratch to attract customers. Although a known brand name has a customer base, you'll be on your own. It will take hard work and possibly years to attract customers and develop your customer base.