Franchise or Start-Up?

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There are many reasons why purchasing a franchise can be much more advantageous than a new startup business. A start-up can be quite challenging if you are not familiar with the various aspects of running a business, or have limited experience with financials, operations, marketing, employees, accounting, taxes, etc.

Whatever the reason for your entrepreneurial spirit, you need to determine if franchising is the right answer for you. Franchisers can provide "proven" systems including operations, marketing, sales, technical assistance etc. Often someone buys into a franchise and then decides they have a better way than the system they just purchased to market, sell or operate their business. It is important to decide if following a franchiser's system regarding how to operate a business and or to take care of customer's needs matches your own sentiments. Or, perhaps you feel you have a very specific business plan to accomplish your goals. If your plan conflicts with the franchisers's established system, then a start-up might be perfect for you.

Remember franchisers's can require a franchisee to follow a script in answering the phone, or how and what they sell to a customer, creating invoices, purchase very specific equipment, forms, and signage and the list goes on. They also can dictate your hours of operation and territory restrictions. Sometimes, marketing and or advertising fees and any associated expense is not an option. They can be a requirement of the franchise agreement, which needs to be incorporated into your business plan.

Whether you decided to franchise or start your own business, you would want to develop a business plan that includes financials, marketing, sales, advertising, forecasts, etc. for ideally five years.

Also, a franchise already has an established name or brand recognition. Generally when a company is a start-up, they have no name recognition, no customer base, and no following. The franchise provides a recognized name, but keep in mind that it does not guarantee business will walk through your door when the sign goes up.

It also provides a forum for other franchisees within your industry to network and often meet as a group. Sometimes, pockets of franchisees can form a "pool" and advertise or market together.

Most often there is an initial purchase fee as well as ongoing royalties on sales that would not be incurred during the new start-up.

Much thought has to go into buying a franchise. If you cannot take an established system and make it part of your business plan, or if you feel your ideas are better than the franchiser's, you may want to look more seriously at the start-up business.

Once you have chosen a couple of franchisers you feel would be suited to your business, go to their stores some distance from your anticipated area of purchase and see if you can talk to the owner. More often than not, they will give you some indication as to the value they bestow on their franchisers. There are also several franchise consultants that will help you make choices in the decision process. They are sometimes a liasion to the franchiser and can help answer questions regarding the UFOC (Uniform Franchise Offering Circular (UFOC) which is a legal document the franchiser will have to supply you before signing any documents. These documents are not always perfect pieces of information, and can sometimes be generic bits of facts.

Visit these websites for some more detailed information:

International Franchise Assn, (IFA) www.franchise.org

Federal Trade Commission (FTC) www.ftc.gov

Franchise Business Review (FBR) www.fbr50.com