Franchise or Independent Business. How to Choose?

A study by the International Franchise Association Education Foundation and PricewaterhouseCoopers acknowledges that franchising is an effective business structure for many small business entrepreneurs. The 2001 study concluded that franchises accounted for 9.5% of the US private-sector economy. That means more than 18 million people are employed in the US, either directly or indirectly, by franchise investments and account for nearly 14% of private-sector employment.

The statistics are impressive – but is a franchise the type of business you want to tackle?  Consider these facts before you decide whether to by an independent small business instead.

There are generally two types of franchises: business format and product-distribution. Restaurants, convenience stores, automobile services and tax-preparation services comprise business format franchises. Product-distribution franchises include vehicle dealerships, gas stations and beverage bottling and distribution companies. The combined total number of both types of franchises in the US was already approaching 800,000 in 2001 when the IFAEF/PricewaterhouseCoopers study was conducted.. Most people readily think of a fast-food restaurant chain when asked to name a franchise. But a simple Internet search will quickly compile countless franchise opportunities in automotive, fitness, cleaning and maintenance, spas, heath and senior care, retail and pet care, to name only a few. The vast selection of franchises available today gives the investor a number of choices and enables them to purchase according to their own interests and personality.

Since a franchiser has already laid a business foundation, your company could be leaps and bounds ahead of another small business had you started from scratch. This does eliminate a certain amount of risk and gives you a proven business model to work with. Customer brand recognition is a huge benefit of buying a franchise business. As a franchisee, you will also profit from aggressive regional or national marketing campaigns the franchise pays for, helping you grow as it attracts customers to your products and services. Most franchises build in a certain about of training with the purchase, which can give even a novice an efficient way to learn the basics of the business. Companies feel compelled to equip their franchisees with training and on-going support. Plain and simple: if you are successful, they will be successful. Experts suggest that entrepreneurs who opt for a franchise get business funding much more easily since financial institutions generally see franchises as more credible and less risky to invest in than independently-owned businesses.

Yet buying a franchise – and its reputation – can cost quite a lot. You not only buy the company’s equipment and products, you’re also paying for the company name and reputation. In addition to your initial franchise fees, a portion of your monthly revenues will go back to the company. Be prepared to give up control of many aspects of your business, as well. An independently-owned business will allow you much more freedom to operate day-to-day trade as you wish.

If you want more management freedom, you might be better suited to an independent business. At Kapitalized.com we help provide strategic guidance to entrepreneurs when considering the form, costs and value potential of their venture including buying into franchise arrangements, expanding a business through franchising or simply launching a standalone startup.

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