Friday, May 21, 2010

Buying a Franchise Vs. Starting your Own Business

Guest Post – Buy a Franchise? Or Start Your Own?
2010 5/18

The following is an article written by Michael Tunstill. Michael is the founder of EveryFranchise.com. You can click this link to visit his website.

For many people who would like to start their own business the thousands of franchise opportunities that are being advertised out there promise a fast start to getting into business for themselves.

Starting your own business can be a difficult and long drawn out process, full of pitfalls and traps for the novice entrepreneur and unfortunately a significant number of businesses never reach the break-even stage.

To buy a franchise business allows you to shorten the learning curve considerably. Not only will you instantly be trading under an established name – which has most likely taken years, if not decades, of nurturing and promoting to establish – but you will also have access to the business know-how and experience which has made the franchise a success. The person who founded the business into which you may buy a franchise would have possessed a whole lot of sheer bloody-mindedness and extraordinary drive to not only have created the business concept in the first place, but to steer it to where is now – a (hopefully) successful franchise. If you do buy a franchise opportunity, you will be buying into, and be able to benefit from, the same culture of success.

So what are the reasons to NOT buy a franchise? The two main reasons are cost and restrictions.

Starting a franchise will often cost more upfront than starting an original business concept. This is because you will have to pay a franchise fee which covers the franchise development costs, franchise marketing expenses and the franchise training program. There will the be additional costs of a franchise royalty and usually you will need to contribute to the franchise advertising fund. Additionally the franchisor may insist on a minimum amount of working capital to be available.

Whilst these expenses may seem high, they will normally be realistic and help ensure that your new business is successful. On the other hand starting your own business may be possible on a shoe-string budget, but it will be a lot tougher to get to the break-even point.

Some of the restrictions that the franchise agreement imposes on their franchisees are there for a good reason: The franchise business model has been finely honed, possibly over decades, and one of the constant battles a franchisor has is resisting the implementation of every new bright idea that franchisors want to try. Uniformity is important in the franchise world. Every customer who is familiar with the franchise chain expects to see the same products, the same branding and the same “look and feel”. It is one of the aspects of franchising that appeals to customers.

Another restriction that may apply is one of territory. Although this is becoming less prevalent these days, many franchises still make it a requirement to define a territory in which the franchise may operate. Such a practise may have the effect of reducing competition in a particular territory and so give a new franchise a better chance of success. On the other hand owning a franchise territory may place heavy burdens on the franchisee who may be expected to develop the territory and reach certain milestones within a given period.

So there are many factors to consider when making the decision whether to buy a franchise or start a brand new business concept, but for many, the discipline and guidance from the franchisor will make buying a franchise a wiser choice.

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