Franchise or New Business: Which is Right for You?

Thinking of starting a business? Before you do, consider an option that gives you an established system and known brand: a franchise! There are many benefits to running a franchise, as there are benefits to starting a new business. The truth is, which one is right for you will depend on what your goals are and the type of entrepreneur you are.

Why consider a franchise

If you start a business from scratch, you’ll have your work cut out for you. Not only will you have to get the business up and running, but you’ll also have to establish your brand and attract customers.

For some, that’s an exciting challenge, but others want a tried-and-true solution.

A franchise is essentially an out-of-the-box business, meaning that it’s ready to go immediately. Once you’ve chosen the franchise brand you want to be a part of, you’ll receive all the signage, products and marketing materials you need to get started.

You’ll also have the support of the franchisor, should you have questions or need guidance. After all, it’s in their best interest to make sure you succeed, since you pay them a royalty fee.

Because the brand is already well-known locally, nationally, or even globally, you have less work to do in the marketing department with a franchise. You may have some ability to be creative with marketing campaigns to attract local business, but in general, the franchisor will guide you with promotions and ways to draw in new customers.

While franchises aren’t guaranteed to succeed (factors like the economy and where your business is located will impact its success), they may have less risk than starting up a new business. 

Why a franchise might not be a good fit

On the other hand, if you’re someone who likes creating things from scratch, a franchise might not satisfy your desire to innovate. Franchises have a lot of rules, so if you’re not a rule-follower, you might be better off starting your own business.

Giving up part of your profit is never fun, and some people resent paying a franchisor a chunk of monthly sales, as well as (sometimes) other fees. Also, keep in mind that franchises are often required to use particular vendors or services since the franchisor has negotiated special pricing. If you’d rather choose who you work with, this isn’t a good fit.

Why consider starting a new business

Your other option is to start a business from scratch. You have a great business idea and you’re ready to create it with your own two hands. You have the ultimate ownership of all business decisions (unless you share those with a partner) and aren’t beholden to a franchisor and its rules. You can add product lines, tweak your business strategy, or raise prices whenever you want, whereas with a franchise, you can’t.

It may cost less to initially start a business than to pay the franchise fee, though of course, you will have startup costs with your business launch, as well as costs to maintain and grow your business down the line.

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When a new business isn’t right for you

Unless you’ve got major funding and have the ability to hire staff right away, you’ll probably find yourself taking on multiple jobs when you first launch. This can easily lead to burnout, which can impact your ability to help the business grow.

If you’re not adept at some of the roles you’ve taken on (like accounting or writing), your business may suffer. Ideally, you’ll hire for these roles, but that’s not always possible in the early days.

If you second-guess your business decisions, you may struggle as an entrepreneur. Having the reinforcement of a franchisor can help with those decisions since most have already been made by other franchisees.

Starting a business on your own is risky. The failure rate is high. So if you’re not comfortable putting your security on the line, you may not be ready to start a business on your own.

Attracting new customers, especially if your new business has a lot of competition, can take all of your time and money if you’re not careful. You may want to give up before you build that snowball of customers that will, over time, grow.

There’s no easy answer here. It’s important to ask yourself questions about what you want out of a business. Do you want to run it yourself, or hire staff to do it? Do you want passive income or the chance to explore your passions? How much risk are you willing to take? How much guidance and support do you want?

Give this decision plenty of time to simmer in your mind, because it’s a big one.

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