Buying a Franchise vs. an Independent Business: What Are the Pros and Cons?


By Jeff Swiggett

You would love to operate your own business, and over the years you’ve set aside money to invest in a company to fulfill this lifelong dream. And when it finally comes time to buy a business of your own, you’re left with two options: investing in a franchise opportunity or buying an independent business.

While both options put you at the top of the corporate ladder, they each have their own unique advantages and drawbacks. Learn about the pros and cons of each to help you determine which option is right for you.

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Investing in a franchise: Be your own boss with limits

Franchises are essentially ready-made businesses. You don’t have to develop a new service or product that fulfills an existing problem. Instead, a franchisor provides the business model, training, assistance, and even market research. The products and services have already been developed, and the business typically has an established brand and customer base. When it comes to jumping into a more managerial role with established work processes, marketing strategies, and advertising, a franchise definitely has its benefits.

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So, what is left for you to do as a franchisee? Of course, you’ll still have a lot to manage within the business. Just like a standalone business, you’ll need to:

Establish financing. This step is often easier since the franchisor already has a business plan and market research that investors want to see.

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Decide on a location. While many franchisors offer support and research to help you choose the best location for your new business, you may still need to do some legwork to locate the best site.

Build or lease. Leasing a property will usually be more cost-effective; however, the operations may require a more specialized space, and there may not be any existing buildings for lease that fit the requirements.

Hire employees. The number of employees you hire will be based on the size and complexity of the operations.

Purchase or lease equipment. The franchisor will typically supply you with a list of equipment suppliers or distributors where you can purchase everything you need to run the business.

RELATED: Important Questions to Ask Before You Buy a Franchise

Caveats with franchises

There are several drawbacks when it comes to franchises. The most significant disadvantage is that you don’t have total control over how you run the business. After obtaining financing, hiring employees, and receiving training, you will still have to follow the rules set by the franchisor.

Franchisors will provide you with a Franchise Disclosure Document (FDD). This extensive document tells you all of the policies that you will have to abide by while running your business. It also outlines your responsibilities as a franchisee. If you decide to accept all of the regulations and fees, the franchisor will provide you with a formal franchise agreement.

Another disadvantage is that you will have to pay ongoing royalties and share your profits with the franchisor. Also, you should keep in mind that there will be other franchisees who have purchased the same business model. If another franchise owner operates their business poorly or develops bad PR for the brand, their negative reputation could impact your operations.

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