Business Advice

Starting a Business: to Buy a Franchise or Go it Alone?

Starting a business can be a daunting proposition, with the aspiring business owner facing a myriad of tasks, decisions and challenges. Many business functions suddenly become the responsibility of the owner, whether they are skilled in them or not. That’s not to forget the financial risks, which can be life changing in either direction – boom or bust

Starting a business can be a daunting proposition, with the aspiring business owner facing a myriad of tasks, decisions and challenges. Many business functions suddenly become the responsibility of the owner, whether they are skilled in them or not. That’s not to forget the financial risks, which can be life changing in either direction – boom or bust. The more risk averse entrepreneurs may see franchises as a great option, with some safety in a known brand, training, systems and processes, infrastructure and support; the best of both worlds (in theory). But, with the horror stories of franchising splashed across the media, it’s natural to question the promise against the reality. Is it better to just start a business on your own, save the extra fees and invest that into your own business? There is no simple answer, as every situation is as different as every new business owner. Let’s look at the pros and cons of each.

Buying a franchise

There are lots of franchises out there, varying in size from just a few, to national icons with thousands of franchisees. Even though the sector is highly regulated, the way that each business is run varies a lot. In franchises, the franchisee mostly follows the business formula of the company, doing things the standard way that fit in with the company brand. That can be as varied as making muffins,  mowing lawns or running fitness classes.

The upside of being part of the franchise is that you get to benefit from the brand identity, the business that comes with that, marketing systems and support. The idea of immediate cash flow is tantalising for a new business and can be quite appealing. The reality of how much support you get, how good the brand is and how much business you actually get varies a lot from franchise to franchise - sometimes good, sometimes not.

One crucial factor for being in a franchise is that you can have less control over many aspects of the business. Ideally you should believe in the product and the company, which can be a challenge for some headstrong entrepreneurs. If you like doing things your own way, you may feel constrained by being in a franchise. Another factor is the location and how many other franchisees there are (and will be). Franchisors that want to grow sometimes do so at the expense of the franchisees. In my own experiences, I bought into a network being told there would be 18 in the state, which changed to 30 within 6 months. Some previous franchise clients of ours had their business cannibalised by a neighbouring franchise.

Of course you pay the support, brand, marketing and systems, which means fees and charges up front and ongoing.

Starting your own business

Starting a business on your own is a lot less restricted than a franchise, so everything you will need to do yourself. There’s no built in support, processes and policies to follow, no brand, not traffic already looking for you. Because of that, you have an opportunity to do things completely your own way, to build completely your own empire, your own brand. With less restriction, you can control the set up costs more, but it will be up to you to build up the business.

But that has its own risks. As with franchises, there are stories of success and failure. Without doubt, you will totally believe in the company since it’s yours.

How to decide

For any potential investment, especially a business, due diligence is crucial. Build your team of experts and consider all of the opinions in your decision making. In the most successful franchises that I have worked with, the franchisor has the best interest of the franchisees at heart, and doesn’t kill the relationship through punishing conditions or profit-at-all-costs attitude; they are there to support when times are harder. Know the conditions of your agreement inside out and get great legal advice. 

As there are so many franchises out there, do your homework and talk to some existing franchisees. Really ask yourself if you want to do that activity in the company way, every day?

For the start-ups, take the time to build a solid business plan with external expertise to know what you are getting into.

The ultimate decision rests a lot on the right opportunity but also on who you are as a person. Even though both are forms of business ownership, the experiences can be quite different. Knowing what is important to you as a business owner will act as a framework to make your decision. Take your time and look at lots of options; for the right choice, an exciting and rewarding experience lies ahead.


For more information contact
Dr. Warren Harmer
Chief Business Planner
Email warren@businessplancompany.com.au or visit
http://businessplancompany.com.au