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Which is Best for You: Business Ownership or Franchising?
Entrepreneurship is the dream of millions of people who aim to be their own boss and get on the track to building their business empires. There are two primary forms of business models: Ownership or Franchising. While aspiration is a common connector of dreams, many possibilities exist today. One can start a small business from home, launch an eCommerce marketplace, build a high-value D2C brand or launch a service-oriented business such as a creative agency. Another lucrative option is to own a franchise of an existing company such as a popular chain of restaurants or a certain brand of hair products.
Choosing the Right Business Model
Owning your own business or a franchise of an existing business are two very unique models. It is difficult to qualify whether one is better than the other. It is more accurate to say that the right model for you depends on what drives you and how you’d like to be engaged in your business. Do your due diligence by trying to understand the nuances of each model. Then pick one that works for your personality, skill sets, aspirations, and long-term vision.
How Does Franchising Work?
When you own a franchise, you are not setting up a brand from scratch. This opportunity empowers you to distribute the products or services of an existing brand. Core aspects such as the brand name, logo, tagline, brand awareness, and business model, already exist. Brands leverage the franchise model to scale up quickly, increase efficiency as they expand their operations, and drive profits.
While you are not setting up the business from scratch, you are the owner of your business and are responsible for profit and loss, quality control, and managing all other aspects of the business.
Franchises also tend to have a uniform format. Franchise owners need to maintain uniformity in the services to be rendered. In 2021, the US alone had 780,188 franchise establishments. Of these, McDonald’s generated the highest amount of business, followed by 7-Eleven.
Benefits of the Franchise Model
Brands with a franchise model tend to invest in building a pool of resources and frameworks to support their franchise network. Here are some of the useful benefits to look out for:
- Training programs: Brands typically curate extensive training programs that empower owners to get savvy about all aspects of the business – from set-up to brand values, targets, and recruitment.
- Continued support: Access to ongoing support in areas such as HR, technical, and accounting would be available to you. Technology has made this much more accessible via hotlines and messenger services.
- Set-up support: Companies help new owners with aspects such as location selection, operations planning, advertising, and marketing.
- Financial assistance: Setting up a franchise comes with certain start-up costs. Some companies have a financial assistance program that allows you to take a business loan to get started. Understand the terms and conditions well before taking a loan.
- Prior experience is not a must: This is a unique opportunity that does not require any business experience. Those new to the business will receive the guidance they need.
Limitations of the Franchise Model
In a way, as a franchise owner, you are handed a recipe for success on a platter. However, this opportunity comes with certain challenges and limitations.
- There is considerable pressure to succeed on a deadline with sales targets already set.
- Since the business follows a set model, there is not much wiggle room for innovation. You need to make it work in its existing format.
- Uniformity is a key expectation. For instance, customers expect a pizza across all franchises to be the same size, flavor, and texture.
- You will also be signing a formal agreement with the business owner, which comes with various terms and conditions.
Understand all aspects and then make an informed decision. When choosing a franchise partner, analyze whether you feel passionate about the brand and the business model. When the going is not so great, your passion and excitement about the business will help you stay motivated.
Setting up Your Own Business
When setting up a franchise, most of the strategic and creative thinking for the business is already done. Some folks might experience a sense of relief on hearing this. If you are not one of them, then you may fall into the league of entrepreneurs who want to build a business from scratch.
Perhaps, you have an idea that you are already passionate about or see a gap in the market and have a profitable solution that will close the gap. Launching your own business creates a foundation for you to truly be your own boss and work on your own terms.
Here’s a quick rundown of the benefits and challenges of starting up on your own:
- Since you own 100% of the business, you have full autonomy over all decisions – from the brand name, logo, and brand values to the product colors and work culture. This opportunity comes with much more responsibility, but this can also be an exciting journey for those with an ambitious vision.
- It’s extremely important to have a business model in place to bring in revenues as early as possible. Earning revenues also doubles up as proof of concept that your idea has the potential to grow into a successful and sustainable business.
- You get to fix the start-up costs and draw plans to scale up, based on a budget and the timeline you allocate, when you deem fit to accelerate growth.
- As an independent founder, you will need to raise funds on your own. You can choose to be bootstrapped, invite friends and family to chip in, or else approach investors. Each route comes with its own pros and cons. The key is to make a well-informed decision and have patience as things play out.
- If you choose to form an LLC, you can file yourself or you can hire a company for help. If you want to hire someone, I recommend Northwest Registered Agent. Please see this Northwest Registered Agent review for more details.
- Building a successful business takes up a combination of skills such as digital marketing, accounting, technical skills, and sales acumen. You may need to partner with a co-founder who brings in complementary skills and expertise, hire a team or work with collaborators, gig-style, based on the skills you need to grow your business.
Preparing to Be Your Own Boss
Taking the plunge into entrepreneurship is a major step. You might be considering quitting your full-time job to follow your dream. Here are some steps to consider when doing so:
- Ensure that you have a 12-month emergency fund earmarked for personal expenses to tide you through the initial years, when you may not yet be making a profit.
- Outline the start-up costs needed to get your business off the ground and start accumulating funds for it.
- Do your research on the options you’d like to go with – business ownership or the franchisee route.
- Create a business plan that factors in your business model, inventory, and operational costs for the first 12 to 24 months.
Both options – business ownership or franchising – come with great potential and also some challenges but can be equally successful. The key is to figure out which one is right for you before taking the plunge.
Matt Horwitz is the founder of LLC University, a website that teaches people how to form LLCs. Matt is the leading authority in LLC education and is featured in CNBC, Yahoo Finance, Entrepreneur Magazine, and US Chamber of Commerce. Matt holds a Bachelor’s Degree in business from Drexel University with a concentration in business law. LLC University®, established in 2010, was the first company to create free LLC courses in all 50 states.