The Big Question: Franchising or Starting an Independent Business?

If you want to be your own boss, you better be ready to make important decisions. The first decision you'll need to make is whether you start an independent business or sign up for a franchise. Each is a unique experience and both will involve you running your own organisation. But which is best for you?

Starting a business

Starting a business is a big decision. For some, it will be the culmination of a lifetime's work. For others, it will be a career highlight. For the lucky few, it will be the making of a fortune. However, this can only happen if you make the right decisions and give yourself the best chance of success. The first big choice you'll have to make is whether you're going to attempt to run a franchised business or an independent start-up. There are big differences between the two and each model is suited to a different personality type. While the franchise business model may work for some, it won't be a good fit for others.

Read more: Buy a Business with Franchising

Study your own motivations

If you're going to make a well-informed decision, you'll need to look at your own personal motivations, as well as external factors. Why do you want to own a business? Is it for the freedom, wealth, or sense of self-worth? This will also affect how you run the business in the long term. If you're striving for business ownership because it means you don't have to take orders, you may end up sacrificing some profit in order to maintain that sense of freedom. Likewise, if you're doing it for the money, you may have to compromise on the other benefits of business ownership in order to maximise profits. Some businesspeople try and balance all of these aspects of business ownership – although it's very tricky to do.

Why would you choose franchising?

If you’re looking at starting a franchise, you'll probably be doing so because of the security it offers, the money you can earn, and the help you'll receive while you're running the franchise. Franchising is an attractive model due to its high success rate. You take a proven business model that works in a variety of settings and apply it to a new market. You have the backing and support of a large, experienced organisation and you follow a ‘fool-proof' plan for business success. Consequently, there's less chance of business failure.

If you pick the right franchise, the financial rewards can be incredible. Getting in on the ground floor of a franchise with large growth potential allows you to expand quickly and efficiently, building your business empire one unit at a time, until you’re ready to diversify. Finally, franchisees benefit from years of work building the franchise’s brand and raising public awareness of the company.

Why wouldn’t you choose franchising?

You may want to avoid franchising if you desire true freedom and don’t want to have to answer to anyone. The franchise business opportunity is best suited to those who feel comfortable following orders, can collaborate closely with individuals in a senior position, and who don’t mind running their business according to a strict plan. As a franchisee, you won’t have the power to radically change what you sell or how you sell. That’s all up to the franchisor.

The second major disadvantage to the franchising system are the fees. All franchisees must pay a series of ongoing fees to cover costs accrued by the franchisor and to ensure the franchisor makes a profit. Besides the initial franchise fee, there is also the royalty fee and sometimes an advertising/marketing fee. These last two are typically calculated as a percentage of your turnover. Franchise fees can eat into your profits, so it's important to factor them in when performing due diligence research.

Why would you choose an independent business?

If you want to push boundaries and utilise your creative forces, a startup is probably best for you. Not only do they allow individuals to be more innovative and expressive, their success often depends on it. Whereas franchises utilise a strict business plan that must be the same for all franchise units, start-ups have to look for ingenious new ways to differentiate themselves from the competition.

Start-ups also allow for unlimited growth. You could build a business empire from a small one-man start-up. The same could not be said for franchising. Though franchising facilitates the quick and efficient expansion of a certain business model, franchisees can only grow their business so far before it reaches its maximum size and profitability. On the other hand, start-ups can grow and grow and grow. They can become the biggest corporations in the world or collapse and never be heard of again. Which brings us on to the main disadvantage of start-ups.

Why wouldn’t you choose an independent business?

There is a much greater risk - though this is balanced by the possibility of a much greater reward. This is most apparent in the failure rates associated with each type of business model. With start-ups, 25% fail within their first year and 50% will have closed within 5 years. 30% of those remaining fail within the next 10 years. In contrast, franchises benefit from a high success rate. The training, resources, and support franchisees receive from their franchisor ensure that they’re well prepared for the role. They also benefit from a proven business model that’s simply not as risky.

Conclusion When it comes down to it, the decision between independent business and franchise depends on your personality and what you want from the experience. Both models have their advantages and disadvantages and both will suit a slightly different type of business owner. However, it’s also important to recognise that not all franchises are alike and neither are all independent businesses. Consequently, it’s important to do a little extra research and delve a little deeper to make sure you understand what both models really involve.