So you’ve decided you’re done working for someone else and are ready to go into business for yourself! The question is, should you start a business from scratch, buy an existing business that is being sold, or start a franchise?
This article was written by Eric Stites, CEO & Managing Director of Franchise Business Review.
Your Business Ownership Options
Starting a business from the ground up enables you to design and manage the business according to your vision. On the downside, however, you must create everything from scratch starting with the business model. Failure rates tend to be high among new independent businesses. An unrealistic or poorly developed business plan, inadequate access to financing, and a lack of management experience are typical reasons new businesses fail. Another issue is that it takes time to work out the kinks. New businesses also often experience financial losses in the first several years until their brand, market, and customer base are established.
Buying an existing business is a second option. The benefits are immediate cash flow, a known track record, an existing customer base, and employees on deck. Possible risks include pre-existing financial, legal, or contract issues, negative brand recognition, and challenges with employees or vendors. Some businesses have difficulty surviving a transition of ownership.
Franchising is yet another option, and some say that it’s a sweet spot. You get the responsibilities that most small business owners have–hiring staff, local marketing, etc.–but you also get advantages that independent business owners do not enjoy, which we’ll cover in the next section.
7 Reasons to Start a Franchise
1. Proven System
Established franchisors have worked out all the bugs in their business and have a proven, effective system in place. Since you are handed a road map to how to successfully run your franchise that includes marketing, training, operations, and more, you do not have to spend time on developing these aspects of the business and can instead focus on execution and growth.
“Business ownership is wonderful, however, oftentimes it is plagued with tons of barriers to entry. There are always things you don’t know: growing pains, consistency issues, sourcing problems, etc.,” says Mateusz Dabrowski, who owns a PJ’s Coffee of New Orleans franchise in Gonzales, Louisiana. “A lot of these issues are completely avoided by being part of a tried and true franchise system. The franchisor helps you on all fronts including marketing that reaches new and old customers, corporate sourcing oversight to maintain the product’s long-term perception in the eyes of your consumers, training, and more. Most independent businesses can’t accommodate for a specialist in every field to help you stay ahead of the game. This is where franchising truly shines.”
2. Support –
As a franchisee you’ll have the support of the franchisor (parent company) and fellow franchisees (other franchise owners like you). It’s like having a team of consultants at your beck and call whenever you have questions, whether they involve staffing, customer service, sales, marketing, or something else. In addition, the franchisor keeps an eye on and addresses industry or market issues so you don’t have to.
3. Brand Recognition
A recognized brand helps you attract customers and staff. With a franchise, you’ll enjoy the benefits of a pre-acquired customer base, which would take years to establish if you started a business from scratch.
4. Meet Customer Expectations
Delivering on consistency is essential when it comes to building a good reputation and repeat business. The franchisor’s clear concept and proven systems will make it possible for your team to consistently meet customers’ expectations.
5. Fast Track to Profitability
A franchise’s proven system and brand recognition can help you get out of the unprofitable startup phase and on the path to profitability faster than if you started a business on your own. It is important to note that not all franchisees within a franchise system are equally successful since success is impacted by multiple factors including location and business acumen.
“It really took just several months to break even. I was profitable the first year,” says Chris Drucquer, owner of the CertaPro Painters franchise of the Main Line (Bryn Mawr and Narberth, PA), which is a large territory. In 2015, Drucquer reports his gross revenue was $2.3 million. In 2016, he says he anticipates it will be at least $2.6 million.
6. Cost Savings
Franchisors negotiate discounted rates on purchases that they pass on to franchisees. This can result in lower business expenses and more profit. Independent business owners generally do not have the buying power to qualify for the rates franchisors do.
7. Exit Strategy
If you do not intend to transition your business to a partner or family member, you’ll be looking to sell it when you’re ready to retire. Being part of a strong and recognized franchise system should help increase the value of your franchise and make it easier to sell. Also, many top franchisors will assist you with marketing and selling your business.
Going into business for yourself is a big decision, but only one of many you’ll make as you determine which route is best for you. A franchise is a good choice for many people. Be sure to conduct extensive research and seek as much advice from experienced people as possible prior to investing in a business.
Eric Stites is the CEO & Managing Director of Franchise Business Review, a national franchise market research firm that performs independent surveys of franchisee satisfaction and franchise buyer experiences, which it makes available for free at FranchiseBusinessReview.com.