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Franchise or Independent Business: What's Right for You?

  • Manish Khanna
  • Evaluation
  • August 21, 2020
Franchise or Independent Business: What's Right for You?

The moment you make up your mind on carving a niche as an entrepreneur, you are stuck with a dilemma. While you want to work as your own boss and define your work hours, you are apprehensive about the risks associated with business ownership. Naturally, you feel attracted to the idea of acquiring a franchise which has everything in place and can save all the legwork.

The stress and labour of starting a venture from the ground up are non-existent with a franchise. In contrast, an independent business extends the satisfaction of working on your own terms without any interference. Thus it can become highly confusing whether you should opt for a franchise for sale in Australia or start an independent business.

Both opportunities have their own set of challenges and benefits. Therefore, it is best to understand the basic differences between the two business types to determine which is most suitable for you. So here is a rundown on the different business models.

1. Operational Structure

A franchisee has to pay ongoing royalties ad franchise fee to utilise the intellectual property of the franchisor. It allows them to sell and market their products or services in a defined territory. A franchise network follows a standard set of systems and processes that should be maintained across all the units to ensure brand consistency.

The franchisor and other franchisees in the network are available for support whenever required. It is a stable format as the processes have been tested and optimised for the industry. An independent business, on the other hand, does not have to pay any fee to anybody. The owner has complete freedom to operate the business in any manner without any supervision or guidance.

Thus it is solely dependent on the capability of the entrepreneur who has to build it from scratch without any support. So you will have to create your own policies and processes and check over time which ones work and which do not. Thus the risk of failure is a bit more pronounced with this structure.  

2. Branding Building

One of the biggest advantages of buying a franchise is that you get to own a recognised and reputed brand. Some of the big franchise networks are nationally renowned and extend the benefit of instant recognition. Thus the owner does not have to spend precious resources on creating a new brand and marketing it aggressively to find customers.

It allows the owner to start earning from day one as the brand has a considerable base of existing followers. They only have to pay an advertising fee to the franchisor and get all the marketing and promotional support in return. For an independent business owner, things are not so smooth.

They have to create a new brand in the already cluttered marketplace and it requires a massive amount of capital and time. The entrepreneur will have to employ several marketing techniques to woo the target audience and create a position for the brand so that it becomes visible.

 3. Costing

If you purchase a franchise, then the initial investment cost is lower than setting up an independent business. However, you have to pay the franchise fee and keep some capital aside for the ongoing royalties and marketing fee, which is a part of the gross profits. Also, a franchisee has to make arrangements for renovation as and when required by the franchisor and cannot delay it to save money.

In a nutshell, a franchise proves to be more cost-effective than a business. Also, it is easier to find financing for a franchise as the lenders have evidence of a successful parent brand and financial projections for satisfaction.

On the contrary, an independent business needs a lot more capital to become operational. A start-up involves myriad expenses and the initial marketing and branding take up a significant part of the budget. However, they can control the expenses or postpone a renovation or purchase of equipment as they have complete control over the business.

Also, financing a start-up can become challenging as money lenders and financial institutions may not be ready to back an idea without any supportive documents.

 4. Training and Development

The benefit of training and support is the biggest advantage of owning a franchise. It allows an inexperienced individual to realise his/her dream of entrepreneurship. A potential franchisee does not require any prior experience in the industry as the franchisor takes charge of training the candidate. Plus, they provide them with ongoing support to deal with technical issues or help with any other operational challenges.

An independent business offers no such benefits. Thus the owner has to be experienced and skilled to become an entrepreneur. You may have to get trained and certified through online courses and workshops to improve your knowledge. It can become stressful to control all the functions, such as marketing, administration, logistics, accounting, etc. Without having their actual knowledge.

 5. Autonomy and Innovation

The franchisee has to follow the Franchise Code of Conduct and work according to the terms mentioned in the Franchise Agreement. He does not have any control over the products being sold. So he cannot test new products or add any features to them.

The franchisor spends time and money on researching and developing new products. Thus they have fewer chances of failing as they are created after analysing historical data and customer needs and behaviour.

An independent business is completely under the control of the entrepreneur who can launch or test products at any time. He can change the distribution pattern or prices as when required. However, in most cases, a small business owner does not have the resources and money to spend on testing and has to bear the brunt of failures. It can affect the brand image and lead to financial losses.

 6Location

A franchisee does not have to run around looking for an ideal location as it is already selected by the franchisor. The head office undertakes market research and the help of site selectors and brokers to find the most affordable and high exposure commercial property. They even mediate in the lease negotiations to help the franchisees.

In contrast, a small business owner has to find a suitable commercial space on his own without any help. They can hire brokers and real estate agents to find a busy location which is frequented by their target audience. However, it can take a long time and you may have to settle for something less desirable.

Conclusion

Both the forms of business have their own merits and none of them can guarantee success. Thus if you are planning to purchase a franchise for sale in Australia or launching a start-up, then keep the points mentioned above in mind to make the right choice.