An independent business owner and franchise owner each has its own benefits. What's the difference and what kind of owner should you be? Find out here.
Keyword(s): independent business owner
Around 10.5% of US businesses are
franchises. These franchises stretch from popular food chains like McDonald's
to even NFL sports teams!
As a new
business owner, you may want to harness the power of brand recognition that a
franchise can give you. Or, you may want to be an independent business owner so
you can have full control of your company.
But if you
jump into one of these structures just because everyone else in your industry
is doing it, you could end up losing thousands of dollars—and even worse, your
passion for business.
So how do
you decide whether you should be an independent business owner or a franchise
owner?
Don't worry,
because this article has you covered. Below, we'll discuss the differences
between these two structures as well as the drawbacks and benefits of each so
you can decide which one fits best with your business goals.
What Is an
Independent Business?
The definition
of an independent business is simple. It's a business that isn't part of a
franchise structure.
This means
you're starting something new from the ground up. But that's not to say
starting an independent business is easy.
Being your
own boss means you'll have to do everything on your own. This includes:
- Finding a space to rent
- Paying your bills
- Buying the necessary equipment
and machinery
- Hiring when needed
- Marketing your business within
the community
Many
business owners are okay with these tasks, however. This is because independent
business owners have complete control over their business with no one else to
answer to, and can run it as they see fit.
What Is a
Franchise?
A franchise
is a business that's operated under franchise agreements. A franchise agreement
means you're part of a larger franchise company and will use its name,
trademarks, and other assets.
Most
importantly, the franchise contract is temporary. It doesn't signal that you
own the business. Instead, it's more like you are "renting" the
business and the right to use the trademark.
A franchise
agreement could be as short as 5 years and as long as 30 years.
When you
franchise your business, you'll be trained on the franchise company's standards
and operating procedures. You'll also be selling the same products as other
franchisees.
In a
franchise, you'll have to pay an upfront franchise fee as well as ongoing
royalty fees. These royalties generally range between 4 and 12%.
In return,
the franchise company will offer resources such as advertising and marketing so
you can focus on running your franchise more efficiently.
Control Over
the Business
When you are
a franchise owner, you have less control over the business even though you paid
for the franchise rights through your franchise fee.
This is
because the franchise agreement lets the main company oversee your business.
They may even make decisions about what your franchise can and cannot do.
You also
can't make changes to the company's products or services. This can be a problem
if the market starts to fluctuate or certain products and services aren't
selling very well.
In contrast,
with an independent business, you have total control over the business's
management.
Unlike with
many franchises, you can control your hours of operation, which equipment you
use, how you train your employees, and more.
Costs
One of the
biggest challenges in business ownership is the costs, and these are lessened
when you have a franchise.
As a
franchise business, there's a lower upfront investment. While you will have to
pay a royalty fee upfront, this is usually a lower fee than the full startup
costs of an independent business.
Depending on
the type of business you start, independent business startup fees can be very
large.
For example,
if you start a restaurant, you will have to pay for renovations, staff
training, ingredients, kitchen supplies, licenses, and more.
While it
seems like starting an independent business is always more expensive, this
isn't the case. The costs of starting a franchise and an independent business
vary greatly between industries and your business location.
A franchise
company may want you to keep a certain amount of product stock at all times.
They may also want you to rent a prime location so that you can get more
customers.
If you're
having trouble deciding, make a list of startup costs for your type of
business. Compare how much you would need to start a franchise or an
independent business in this industry and area.
Brand
Recognition
When you
franchise your business, you get brand recognition. This is because franchise
companies spend thousands of dollars per year on marketing and promotions to
build their brand.
This can be
beneficial because franchise buyers are more likely to recognize the franchise
company's name. Plus, they may want to use products and services from a
franchise company because they trust the brand.
Owning an
independent business means that you have to rely on your reputation and
marketing skills to build brand recognition.
You may also
have to deal with competition from franchise owners who are in your industry,
as they have access to their company's marketing materials and training.
Available
Resources
Because
franchise companies have so many franchise owners and employees, they can
provide you with greater resources than your independent business.
These
resources often include:
- Franchise manuals
- Franchise contracts
- Franchisee training programs
- Franchise marketing materials
- Profit and loss goals
- Marketing schedules
- A network of suppliers
One of the
biggest benefits for franchisees is that they can use the business model of the
franchise company. This is great for new business owners who are new to
marketing and business processes.
Franchise
owners also get corporate support from the parent company, which is helpful if
they have any questions. This is especially useful in fields such as senior
home care (read more about this
here).
An
independent business owner may have to figure all these items out on their own,
but there are different resources they can turn to.
For example,
independent business owners can join their local small business association to
access helpful resources and possible mentorship opportunities. They can also
try applying for a small business grant.
Consider Your
Passion
Many people
start a business because they want to follow their passion. Another reason
that's often cited is the freedom to make your schedule and be your own boss.
If your
passion drives you to create a unique and innovative product, then a franchise
may not be for you. This is because franchisees must follow all the rules and
regulations of their franchise company.
But if
you're passionate about an existing product or service and would love to bring
it to your community, then a franchise could be a great option for you.
Before you
decide, write down what your passions are and whether an existing product
already exists that would fulfill this. This will help you decide which
business structure to pursue.
Independent
Business Owner or Franchise: Which Is Right for You?
When
deciding between business vs. franchise, you want to think about three things:
- How much time you have
- Available funds
- Level of risk
As an
independent business owner, you will need more time to figure out the right
marketing strategy, what products to sell, and how to build up your
brand. With a franchise, much of this is done for you, so you'll
save time.
A franchise
may also be cheaper to start than an independent business, but this isn't
always the case.
Finally,
it's not a guarantee that the business will be successful just because it's a
franchise. Make sure to compare how much risk it would be for you to start a
franchise versus an independent business. Factor in the potential for time and
money lost if you fail, as well as if you need to get a loan.
If you are
new to the business and don't mind not being able to control every aspect of
your company, then a franchise may be a good choice for you.
It's also a
great choice if you need more support from experts.
But if you
need more autonomy in your business or have opened a successful business
before, then perhaps you would prefer to start an independent business.
That way,
you don't have to worry about royalties or not being able to control your work
hours.
Start the
Business of Your Dreams With the Right Business Model
We hope this
article helped you understand the differences between owning a franchise and
being an independent business owner. Whichever business model you choose, think
about your specific goals, experience level, and what you're passionate about.
And no
matter which route you choose, make sure to do your research so that you can
make the most informed decision possible.
Be sure to
check out the rest of our site for even more helpful articles as you start on
your business journey!
