Step 1: Understand Your Options

Buying a Franchise vs An Independent Business – What to Consider

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Buying a Franchise vs An Independent Business – What to Consider

Buying a Franchise vs An Independent Business

Buying a business or a franchise is a big decision. There are many options to choose from within a wide range of industries. Your choices can include an established independent business, an existing franchise, or a brand new franchise to be the first in your local area. Either way, there are many factors to consider and you need to understand the pros and cons of each type of business.

Whether you have your eye on a popular franchise concept, or are considering an independent established business, you want it to be successful, and you want to reduce any risk. After all, if you are potentially committing your life savings, you want to buy a business that not only meets your financial goals, but also suits your skills, experience and personal lifestyle.


Option 1: Buying an Independent Business

Buying any type of established business already has many advantages, including existing cash flow, an established customer base, trained employees, inventory, and more. However, when you delve deeper and add franchise consideration to the mix, you might want to examine both the upside and downsides of owning an independent business against a franchise model.

Pros

  • Autonomy in decision-making
  • Predictable costs (i.e. no ongoing fees to a corporation)
  • No royalty fees due

Cons

  • No economies of scale for supplies and services
  • Limited brand recognition for smaller operations
  • No corporate leadership knowhow to reach out to for operational support


Option 2: Opening a New Franchise

If you choose to open a new franchise location, the business concept has already been proven. Depending on the franchise, in some cases the concept has been proven many times over. Perhaps it has been proven thousands of times over with thousands of locations, if there are many units in operation.

In other cases, you may get in on the ground floor where the concept is relatively new; you may even get a discount on your franchising fee in exchange for pioneering a new franchise concept. However, you are taking on more risk, given that the concept has a shorter history and limited track record.

Though you are opening a franchise, it’s important to know that you are still involved in a somewhat new undertaking. Other franchise units may be successful, but with new factors like a new owner, management team and perhaps location there’s still the potential for problems and even business failure.

Pros

  • A proven business model that has been refined over several iterations (especially for popular, widespread franchises)
  • Brand recognition
  • Improved economies of scale for supplies and services
  • Corporate support and backing

Cons

  • Costly franchise fees and initial investment
  • Ongoing royalty fees
  • Limited autonomy to make certain business decisions
  • No freedom to change products or services
  • Risks associated with new location, owner and management team


Option 3: Buying an Existing Franchise

With this option, you could have the best of both the franchise and existing (independent) business world. You’ll get the benefit of not having to go through the growing pains of starting new, plus access to a corporate support system that can help you if you run into issues operating your newly acquired franchise unit.

Additionally, taking over an existing franchise may give you some negotiating options with the existing owner. If they’ve fulfilled all the obligations of their agreement contractually and financially with their franchisor, there may be flexibility to negotiate terms like owner-financing, down payment, etc. in a way that maximizes your initial investment.

Pros

  • Established customer base
  • Existing cash flows
  • Proven track record for a franchise concept
  • Corporate support system

Cons

  • Potential to inherit franchise problems or “bad-standing” status with franchisor
  • Buyers responsible for franchise transfer fee
  • Recurring royalty fees
  • Limited autonomy to make certain business decisions



Buying a franchise doesn’t guarantee success, but it’s not a bad option to consider, especially if you are open to buying an existing franchise from an owner who’s already made headway in establishing the franchise concept in its current location.

Whether you choose to buy an independent business or a franchise, you need to judge each potential acquisition on its own merits. In any case, be sure to do plenty of research on each option. You can start your research by obtaining a copy of the BizBuySell Guide to Buying a Small Business for more information. Then, check out BizBuySell to search for existing business or franchise opportunities.



The BizBuySell Team