Buying A Franchise Versus Starting A Business

Buying A Franchise Versus Starting A Business



Starting a​ business can be an​ exceedingly rewarding endeavor. From its inception you have complete authority on​ all decisions big and small - something as​ imperative as​ planning a​ restaurant menu,​ for example,​ to​ choosing what color and style of​ blinds to​ hang in​ the​ windows,​ you control everything.

Additionally,​ for those lacking the​ start-up capital to​ purchase or​ rent a​ location,​ you can start a​ business from home with little more than a​ computer with Internet access.

As attractive as​ this autonomy seems,​ however,​ starting a​ business from scratch is​ not without pitfalls.

For instance,​ there are high failure rates for new businesses. it​ takes time and effort to​ develop your business plan,​ secure financing,​ acquire the​ necessary licenses and get a​ clientele base. Indeed,​ it​ is​ wise for new business owners to​ have six months to​ one year of​ income set aside to​ subsist on​ while the​ business gets its footing. And,​ unless you have a​ wholly unique business idea,​ you will likely find yourself in​ competition with franchise businesses that enjoy vast brand awareness and customer loyalty.

This brand awareness is​ one of​ the​ major pros of​ buying a​ franchise business. You will be working within a​ proven system and enjoy instant brand awareness and credibility.

Additionally,​ a​ network of​ support is​ available to​ franchisees. This includes technical and managerial support from individuals who are knowledgeable about your specific business as​ well as​ the​ benefit of​ shared marketing.

And,​ if​ another franchisee in​ your area airs a​ commercial or​ sponsors an​ event,​ it​ stands to​ reason that your franchise location would share in​ the​ customers purchased by your neighbor’s advertising dollars.

All of​ these facts add up to​ a​ quicker return on​ your investment because your franchise business is​ recognized from the​ moment you open its doors for the​ first time. Also,​ should you find that you are enjoying great success with your franchise business; expansion is​ far easier with franchises than with a​ small business.

Finally,​ if​ it’s the​ food,​ hospitality or​ retail industry in​ which you’re interested,​ franchise businesses have a​ much greater success rate in​ all of​ these areas.

Despite all of​ these redeeming qualities,​ a​ new business owner should remember that a​ franchise business is​ not a​ guarantee for success,​ and the​ start-up can be quite costly. a​ franchise business requires the​ same initial investment as​ a​ new business where location,​ supplies,​ inventory and employees are concerned,​ but it​ has the​ added cost of​ a​ franchise fee which varies widely but can be as​ much as​ several hundred thousand dollars.

Franchise Red Flags
Entrepreneur.com lists five red flags that should alert a​ new business owner to​ a​ potentially poor franchise choice:

One is​ the​ franchise’s litigation history,​ which must be made available to​ prospective franchisees in​ the​ Uniform Franchise Offering Circular,​ or​ UFOC. a​ new business owner should look for how many cases the​ company has been involved in​ with franchisees. Anything greater than one or​ two cases per hundred franchisees is​ cause for concern.

Second,​ you’ll want to​ examine the​ turnover of​ units in​ the​ company,​ also available in​ the​ UFOC. How many franchisees have left the​ company and why? Was it​ due to​ failure or​ the​ sale of​ a​ successful unit to​ a​ new owner? the​ answer to​ this question can help determine—at least partially—how successful you might expect your unit to​ become.

Another factor that should disquiet a​ prospective franchisee is,​ after sincere research,​ an​ inability to​ come up with any substantial numbers concerning things like sales and profits. if​ it​ seems that this issue is​ skirted around,​ another franchise may be a​ better option.

Additionally,​ before buying a​ franchise business,​ you should ask around about the​ relative happiness of​ other franchisees. Talk to​ other franchise owners. Are they happy with the​ support provided to​ them by the​ company? Are they pleased with the​ success of​ their own units? a​ preponderance of​ unhappy franchisees suggests that you may be unhappy in​ this franchise as​ well.

Finally,​ although it​ seems simple enough,​ a​ brief look into whether your cultural and moral values mesh with those of​ the​ franchise might be easily overlooked. is​ the​ franchise run by individuals whom you deem to​ be honest and that share your ethical guidelines? if​ not,​ it​ may be a​ difficult system in​ which to​ work.

Top Franchises of​ 2007
The Franchise 500® is​ a​ list compiled by Entrepreneur.com using the​ same criteria to​ judge each company,​ no matter what the​ size. These factors are “objective and quantifiable” and include,​ but are not limited to,​ the​ company’s financial strength and stability and the​ growth rate and size of​ a​ company.

Entrepreneur.com examines the​ start-up costs for each franchise,​ the​ length of​ time the​ company has been franchising,​ as​ well as​ some of​ the​ factors on​ their red flag list,​ particularly litigation and turn-over rates. They find out whether the​ company provides financing and use an​ independent CPA to​ audit its financial data. They insert all this data into an​ exclusive formula and assign each company a​ cumulative score. Then,​ the​ companies are simply ranked based on​ those scores.

Just a​ few of​ the​ franchises you’ll find on​ the​ Franchise 500® are: UPS Store/The Mail Boxes,​ Etc.,​ Liberty Tax Service,​ Super Cuts,​ Two Men and a​ Truck,​ Golds Gym,​ Arby’s,​ Microtel,​ Beef O’Brady’s and Chem-Dry Carpet,​ Drapery and Upholstery Cleaning.

While the​ Franchise 500® can be a​ valuable resource for someone considering buying a​ franchise,​ Entrepreneur.com does not evaluate subjective criteria,​ and these areas—such as​ franchisee satisfaction—will need to​ be researched independently.




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