Franchise Or Start From Scratch?

If you want to start your own business, you have to decide if you would like to build something from scratch or use somebody else’s business model to get off the ground. The decision may not be as clear cut as you would think.

Franchise

McDonald’s, Subway, Edward Jones, and Hilton Garden Inn are just a few examples of Franchises. Although the average consumer may think that each of these businesses located in their community is a branch of the parent company, it is, in fact a franchise that uses the corporate branding, products, and services but is ran by a local franchisee, somebody who is not directly employed by the parent company. You can start a franchise of your own in a business of your choice.

The pros of being a franchise owner are vast: Assuming you select a well-known business, from day one that your doors are open, you will have a loyal customer base. You don’t have to go through the huge expense of establishing your brand in the your community and you won’t have the label of “small business” which may cause customers to think twice about visiting your business.

You also receive support from the franchiser, a community of other people to draw upon who have already opened the same store and better prices on raw materials and equipment as you leverage the buying power of the large community of franchisers around the nation.

The major con is startup costs. The better established franchises will cost six or seven figures to start and often, franchisees have capital requirements that not many individuals can meet. Do you have an extra $1 million of cash lying around? You may need it, in addition to startup costs, to get a franchise. There are some franchises that don’t cost as much but the start up costs will be considerable.

In addition, they will take a percentage of your sales, and often require a five year agreement.

Starting from Scratch

Starting from scratch allows you to grow your business at your own pace. You wouldn’t have to quit your day job until the business is self sustaining and the amount of money you invest in to the startup of your business could be very little. You could work from home without having to set up complicated business designations that have large tax reporting requirements and other overhead costs.

The problem with starting from scratch is the cost of gaining customers is large. You probably won’t have the capital for advertising campaigns, marketing agencies, and a staff of experts. The franchise puts these people at your disposal.

Maybe you’re a good writer, jewelry maker, or plumber and you’re thinking of starting your own business. For these types of jobs, starting from scratch will often look more appealing than a franchise because brand awareness isn’t as crucial. If you are planning to open a restaurant or other business that competes with larger chain businesses, having an established brand may give you a higher assurance of success.