You’ve decided to strike out on your own and run your own business. But with both franchises and creating your own business as options, starting out may not be as easy as it seems.
For years, you’ve worked for somebody else. While this has allowed you to develop a range of useful skills, it also means you haven’t reached your full potential. Your work puts more money into somebody else’s pocket than it does your own.
You’ve decided you need a change.
Setting up your own business allows you to take control of your career and, if done well, increase your income.
However, it can also come with complications. Doing it from scratch requires a lot of hard work, which is why buying a franchise may seem more appealing.
In this article, we look at the pros and cons of both starting a business and purchasing a franchise. Business owners must carefully weigh the initial investment, ongoing expenses, and potential returns when deciding which path aligns best with their goals and risk tolerance, and should conduct thorough research before making a choice. Thorough research enables you to make an informed decision between buying a franchise and starting a business. In the end, you should have a good idea of which is the best choice for you.
Understanding Business Models and Structures
When considering whether to purchase a franchise or start your own business, it’s essential to understand the differences in business models and structures. A franchise business operates under a proven business model, offering the security of an established brand and a set of operational procedures that have already demonstrated success in the marketplace. As a franchisee, you’ll typically pay an initial investment, ongoing royalties, and other fees in exchange for the right to use the franchisor’s brand identity and benefit from their established systems.
On the other hand, starting your own business gives you complete creative freedom and control over decision making. You have the opportunity to build your own brand identity from the ground up and tailor your business model to fit your vision. However, this also means you’ll need to invest significant time and resources into developing your brand, attracting customers, and managing all aspects of the business. Business owners must carefully weigh the initial investment, ongoing expenses, and potential returns when deciding which path aligns best with their goals and risk tolerance.
Conducting Market Analysis and Research
No matter which path you choose—franchise or independent business—conducting thorough market research is a critical step in setting yourself up for success. For franchise businesses, much of the heavy lifting is done for you: franchisors often provide detailed market research, industry trends, and demographic data to help you understand your target audience and position your business effectively. This support can be a significant advantage, allowing you to focus on implementing proven marketing strategies to attract customers.
Independent business owners, however, must take on the responsibility of conducting their own market research. This means analyzing industry trends, studying consumer preferences, and evaluating the competition to identify opportunities and potential challenges. By understanding the market landscape, business owners can make informed decisions about their business model, develop effective marketing strategies, and increase their chances of building a successful business. Whether you’re joining a franchise network or launching your own venture, a solid foundation of market research is key to long-term growth.
Starting a Business – The Pros of Creative Freedom
The main benefit of starting a business is that doing so provides you with complete freedom. You’re the one who gets to choose what the business does and who it serves. As the owner, you’ll be the one to come up with the business plan and get to decide how and where you work.
In short, the shackles are off when you start your own business. You’re in complete control of your destiny. One of the biggest appeals is being your own boss, which gives you independence and the ability to make decisions without answering to others.
Best of all, there’s no limit to how far you can take your own business. This differs from franchisees, who generally tend to have limitations on how much they can grow.
Your success is limited only by how good your ideas are and your ability to set up a functioning and sustainable business. Many successful startups demonstrate how quickly a business can innovate and scale, showing the potential for greater income and rapid growth.
Starting a Business – The Cons
Starting a business requires a great deal of creativity.
You’re personally responsible for coming up with the ideas that will make the business successful. While this may be fulfilling to some, others may find that the pressure of remaining creative at all times leads to undue stress.
Perhaps more worrying is the failure rate attached to starting a business. Business failure is a significant risk for new businesses, often resulting from a combination of market challenges and insufficient planning.
The reality is that start-up businesses have a much higher failure rate than franchise businesses. Approximately one-quarter of start-ups fail within a year, with that failure rate rising to half after five years.
There are a number of reasons for this.
Many new business owners enter the market with a deep understanding of their service skills but with a limited understanding of how to run a business. Building brand awareness and achieving market acceptance are particularly difficult for startups, as gaining customer trust and recognition takes time and resources. To find success as a business owner, you need to get to grips with the numbers behind your business and focus on issues you may never have handled before, such as hiring. Having sufficient financial resources is crucial, and secure funding can be a major challenge for independent businesses without established backing.
Furthermore, starting a business means you are in control of every aspect of the business. While this is beneficial in terms of the freedom you have, it also obligates you to create all of the systems and processes required to ensure the business operates successfully. Again, a lack of experience in these areas often contributes to the high failure rate discussed earlier.
So, starting a business is perhaps more challenging than purchasing a franchise. However, overcoming that challenge may lead to your business generating more income than a franchise is capable of.
Purchasing a Franchise – The Pros of a Proven Business Model
Simplicity may be the key benefit of purchasing a franchise.
A well-established franchise will already have detailed systems and processes in place. You will have access to guidelines and training, as well as ongoing support from the franchise system. Franchise systems also provide branded marketing resources, pooled advertising funds, and a combination of centralized and local marketing efforts to help you attract customers and build brand presence. As part of the support, comprehensive training programs and initial training are offered to ensure you understand all aspects of operating the business, customer service, and marketing. This lowers the burden of creativity, as you’re able to step into something that already works and apply it to your new business.
Having access to these proven systems also means that you have a higher chance of succeeding with a franchise than you do with your own business, thanks to the proven track record of many franchise brands. Some statistics place the failure rate of franchises at between 15% and 35%. However, these numbers vary wildly depending on the franchise you join.
As a franchise owner, you’re mainly responsible for the day-to-day operations of your location. That means you get to focus more on providing a service than you do on all of the things that go on behind the scenes. Now, this doesn’t mean you don’t have to understand issues related to accounting and running a business. However, you’ll have support and systems in place to make those tasks easier, and you benefit from established systems, brand recognition, and ongoing support from the franchisor.
One of the other benefits of purchasing a franchise is that they offer instant, established brand recognition. Customers already know what the business does, which means you don’t have to work as hard to attract people to your location. Established franchises also benefit from existing customer loyalty, which enhances repeat business and positive word-of-mouth. For example, companies like McDonald’s and Kentucky Fried Chicken use the franchise model. Anybody who purchases a franchise carrying these brands knows they will attract customers.
Additionally, being part of a franchise network provides bulk purchasing power, allowing you to secure better prices on inventory and supplies than independent businesses, which can reduce costs and improve profitability.
Purchasing a Franchise – The Cons of Franchise Fees
The lack of freedom may be the main disadvantage of buying a franchise
After all, you have to follow a strict set of rules as a franchise owner. That means you likely won’t be able to change or add to the products you sell. You may even have to decorate your store in a defined way. It’s a restrictive system that limits your ability to be creative, in addition to potentially placing a limit on your earning potential.
There are also fees to consider.
The cost of purchasing a franchise typically gets split into two areas. There are the initial costs of the purchase, which require a significant upfront investment and often represent a high initial investment for new franchisees. These expenses related to starting a franchise include the upfront franchise fee, initial inventory, equipment, and other startup costs. A franchise typically requires adherence to specific financial and operational obligations set out in the franchise agreement. The franchise agreement and franchise agreements are critical, as they outline the rights and responsibilities of franchisees, including the use of the franchisor’s intellectual property such as trademarks and proprietary systems.
From there, you must pay ongoing fees to remain a part of the franchise and to retain your right to use the franchise’s brand. Franchise fees include both an upfront franchise fee and ongoing royalty fees, which are usually a percentage of your sales. In addition, franchisees are often required to pay marketing fees as part of the ongoing expenses. These costs, combined with the initial investment, can make franchising a costly option compared to starting an independent business.
Support and Resources for Entrepreneurs
One of the most significant advantages of investing in a franchise business is the access to comprehensive support and resources. Franchisors typically offer initial and ongoing training programs, operational support, and marketing assistance to help franchisees navigate the challenges of running a business. Additionally, being part of a franchise network means you can connect with fellow franchisees, sharing experiences and seeking guidance from those who have faced similar challenges.
For independent business owners, support often comes from their own resources and personal networks. While this can be daunting, there are many avenues available for seeking guidance, such as small business development centers, mentorship programs, and online communities. These resources can provide valuable advice on everything from business operations to marketing strategies. Whether you choose a franchise or start your own business, leveraging available support and training programs can make a significant difference in overcoming obstacles and achieving your business goals.
Which Should You Choose?
Aspiring entrepreneurs often face the franchise vs independent business decision when considering their path to business ownership.
Buying a franchise is easier than starting a business because you get a rulebook to follow. If you’re brand-new to business, this can prove a valuable learning tool. Franchises do a lot of the hard work for you, and a franchised business benefits from established brand recognition, proven systems, and ongoing support.
However, they also limit your freedom. Independent businesses, on the other hand, face greater challenges in building a brand, establishing support systems, and securing resources compared to a franchised business. New businesses must also contend with higher risks and often greater difficulties in obtaining financing.
Startup costs are another important factor—franchises typically require franchise fees and operational setup costs, while new businesses may face unpredictable expenses for product development and branding. Evaluating the financial performance of both options is crucial to understanding potential profitability and return on investment.
Regardless of whether you choose a franchise or start an independent business, adapting to market changes is essential for long-term success. Careful consideration of your goals, resources, risks, and the unique aspects of each model is vital before making your decision.
Whichever choice you make, Unsecured Finance Australia is here to help you.
We offer unsecured business loans from $5,000 to $300,000 that you can use to set up your business. With 24-hour approval and minimal documentation required, you could be ready to start a new chapter in your life in no time.
Find out more about our business loans by clicking here
