Franchise vs Start-Up's

Here at Coastal Business Strategies, we have several customers who face the decision to start a business using a franchise or to pursue their own business venture with a start-up. There are pros and cons of each with several discussions on the Internet that weigh in on the subject of which is “better” and the characteristics of each form of ownership. I wanted to discuss the differences going through with each to figure out which of the two opportunities will be the best fit for your business and you as a business owner. 1. Possibility for failurernEvery business comes with the possibility for failure despite how much effort a business owner can devote to trying to make it work. Most franchises succeed but certain franchises will be met with failure and the fact is that more start-up businesses will fail than franchises. Success and failure rates vary from franchise to franchise and some are worse than others. The article states that more than three quarters of franchises are still surviving after the first five years. I feel that possibility of failure is a big factor when coming to the decision to start your own business rather than buying into a franchise because of the support your receive from a franchise. There are some really good franchises out there and one that I feel is always a great one is Chick-Fil-A. The locations seem to be money makers as they are continuously packed, great staff, great food, and the consistency is unmatched (at least from my experience). The possibility of failure for starting your own business making chicken sandwiches would experience a greater chance of failure than if you were to buy into the Chick-Fil-A franchise because of their support system and methodologies. 2. Other BusinessesrnEvery business will face competition but a franchise has the support of the franchisor, the process, the systems, and the methodologies to be able to successfully compete without taking too much capital from the business. If you are an independent business owner, you don’t have these resources and sometimes cant successfully compete with bigger companies and franchises. Without this support, it can be tough for an independent business owner to compete against a franchise because those business pockets are “deeper” and can spend more money in its efforts to attract new customers via marketing and promotions. 3. Expertise and ExperiencernWhen buyers purchase a franchise, they are getting a proven system organized by a knowledgeable and experienced team. Franchisees get direction from franchisors but start-up owners are left to their own devices. If an independent owner has no experience, the business cannot reflect that expertise. This is a huge factor that separates the two as franchises have proven methodologies that work and there really is no “guess work” in how the business should be ran. As an independent business owner, there is a lot of trial and error but with a franchise, everything is laid out to where it is easy to duplicate and everything is put in place. An independent business owner is going to make more mistakes than a franchise owner and in business, mistakes equal money so experience is a big advantage that franchise has. A start-up business owner must be confident in themselves and their team to bring experience and expertise to their venture to ensure its success and to mitigate mistakes that could cost the company money. 4. FinancesrnStart-up costs are phenomenal for any business as well as other costs that businesses have to take on (admin costs, worker’s wages, maintenance, general business expenses, etc.) An independent business owner has to find ways to raise this initial capital to be able to cover these expenses while also keeping capital for unexpected expenses for their new business venture. On the other hand, franchisees have to invest substantial capital in their businesses. In addition, franchisees have to pay monthly royalty fees. Yet a franchise owner is buying into a proven business. The franchisor can also help with certain challenges throughout the life of the business. For example, having to cut back on one area of your business to promote a marketing campaign could strain your business as you have to conserve capital to operate while focusing on all of the other financial needs of your business. 5. RiskrnFranchisees mitigate their risks because they have the franchisor behind them. Although business is synonymous with an element of risk, it is wise to choose the venture with the least risk. Franchising carries less risk than an individual start-up business. So which is the best? It all depends on the owner of the business and how confident they are in being able to pursue their business venture and their capabilities in being able to do each aspect of their business. Although franchises do have a lot of advantages, the profitability and how much the franchiser makes is a huge factor in knowing if its right for you. I know several people who have made a fortune off of franchises and I also know people who steer away from anything franchise related because they like to have sole ownership of their business. Feel free to share your input or any stories you have on the subject with us here at Coastal Business Strategies (www.cbsplans.com) where we take your “Idea to Implementation.” Don PlegerrnOwner- Coastal Business Strategiesrnhttp://www.cbsplans.comrninfo@cbsplans.com