If you are considering opening a business, you can either open a franchise business or start an independent business. Both of these options are great and can lead to an exciting and rewarding journey to business ownership, but one offers more benefits than the other.
Statistically, franchises for sale have a higher success rate compared to start-ups, making them a better investment. If you are still skeptical about investing in a franchise, here are five reasons why franchise businesses are better than independent businesses.
Starting your own business from scratch comes with a lot of unknowns. As a result, a large number of companies fail within the first year of operation. This is caused by either investing in an unprofitable business model, poor execution of a business plan, or unknown factors that cause disastrous effects. Investing in a franchise, on the other hand, allows you to work with a tried and tested business model that has remained successful in both good and bad financial times. All the kinks have been worked out of the system, so all you have to do is apply it to your target market.
One of the biggest challenges that new independent businesses face is attracting customers and growing a loyal customer base. You will need a good market penetration strategy which often involves a marketing and advertising roadmap to increase brand awareness. An effective marketing strategy can be pretty costly and out of reach for most small businesses. Operating under the banner of a well-established franchise exempts you from the challenges and costs involved in building a brand and driving traffic to your business. Since the parent company invests heavily in nationwide marketing campaigns and has a loyal customer base, your business will already be known and trusted by the market, therefore, benefiting from a steady stream of brand-loyal customers. Even if you’re opening your franchise in a small remote town, the likelihood is that most people are already familiar with the brand from exposure to TV and radio commercials and online advertising.
Starting a business and becoming your own boss is an appealing idea to many people, but running a business is more complex than it looks, especially when you’re doing it alone. As the owner, all business decisions rest on your shoulder, meaning that you’ll have more room for creativity and innovation, but one wrong decision could cost you your entire business. If you are concerned that you lack the knowledge of business ownership or the expertise of the industry you are entering, then a franchise will be more suitable for you.
Many franchises for sale are technically turnkey operations. Depending on the structure of your business and the terms of your franchise agreement, you may receive equipment, supplies, an advertising plan and anything else required to operate your business. Even if you’re not provided with everything, your franchisor will give you the necessary knowledge and wisdom to run your business. You will receive initial and ongoing training to get you and your employees up to speed on all business operations.
Independent businesses are subject to relatively high rates of failure compared to franchises. According to research, only 80% of small businesses survive their first year, and only 50% of businesses survive long enough to reach their fifth fiscal year. This high rate of failure is caused by a number of reasons, but the most common is lack of enough capital, lack of market need, increased competition, poor planning, and leadership failure. Many of these problems are avoidable in a franchising business model because you’ll be using a tried and tested system. It is also much easier for franchisees to acquire business finance compared to other business owners. This is because lending institutions and investors are more willing to invest in a business with a secure brand, a well-established network, and an effective support structure.
Many entrepreneurs are often put off by the seemingly high upfront cost of buying into a franchise, but in hindsight, franchises are much more cost-effective compared to independent businesses. Budgeting for a start-up can be very challenging because of the trial and error approach. On the other hand, franchises are much easier to budget for because all operational costs have been studied and optimized to increase efficiency. Being part of a large organization also allows franchisees to buy equipment and inventory at lower prices because the parent company can use the size of its network to negotiate better deals. This significantly reduces the overall operational costs of the franchise.
When it comes to profits, franchises generally see higher earnings than start-ups. Working with recognizable brands brings in customers in droves, resulting in higher sales and higher profits. Lower operational costs also mean that franchises enjoy higher profit margins.