Are you considering opening a new business but not sure whether a fresh design or franchise is right for you? Both business plan types offer advantages and disadvantages, and the right one depends on a few factors. This guide reviews the pros and cons of each option, helping you make the decision that best suits your financial goals.
Pros of a Franchise
One of the biggest selling points of a franchise is that you get to access a business model with proven success. The franchisor shows you financial records that allow you to see how well the business is doing in other markets.
Depending on your chosen franchise, you can also enjoy almost immediate brand recognition. You may not have to spend as much on marketing to let community members know the type of food or beverages you serve. Franchise ownership also often comes with a clear business plan in place, meaning you have a guidebook on what to do and when to do it, removing some of the chances of human error, which could affect your business sales.
Cons of a Franchise
The biggest downside of a franchise is that while you’re considered a business owner, you’re essentially building someone else’s idea. Franchises also typically have strict rules in place that dictate the items you can sell or how you can market the product. These rules ensure consistency among the brand and its many different locations and owners.
Another downside of franchises is the cost. In addition to the expected costs of opening a new business, you’ll also have to pay franchise fees. This can sometimes lead to higher initial upfront costs for a franchise versus starting your own business. Additionally, you’ll continue paying these franchise fees and royalties throughout the life of your business.
Pros of Starting Your Own Business
One of the best parts of starting your own business is the freedom and flexibility. You can adjust your products or business plan as you go based on what your current customers want and need. Startup businesses can also be more affordable than when compared to franchises since you don’t have to pay the franchise fees.
Cons of Starting Your Own Business
The risk of starting your own business can be higher than with a franchise. You’re testing out a new business idea that hasn’t been on the market yet. As a single business owner, you’re also solely responsible for all business decisions, including the products you sell, the hours you open, and how you market your business.
Smaller business owners without previous experience may also find it more difficult to obtain financing for a new business idea, especially since you don’t have bank statements to prove that the business will likely be successful. You’ll also have to start from scratch with a new business, meaning having to equip or outfit your commercial space to meet your business needs.
Purchasing an Existing Business – Pros and Cons
Another option is to purchase an existing business. With an existing business, you may already have a customer base and business plan in place. Sometimes, business owners sell profitable businesses to retire or move on to other business ventures. Purchasing an existing business offers many benefits, including an established customer base, existing products, and already present brand awareness. Business owners who choose an already established business may find that it’s easier to get lending since there are business documents available to show the lender.
Even better, if you already live in the area of the business in which you purchase, you’ll already have a good idea of customer demand or reputation. If you find a restaurant for sale in Edmonton or another Alberta city and make the investment, you can add your own creative twist to a brand that you already know and enjoy. You also likely already know the unique needs of Alberta customers, giving you an advantage.
As with any business plan, it’s still important to review the potential cons. Purchasing someone else’s business can require some extra work to reshape the reputation, especially if the previous owner leaves it with a negative one. You may also have to reshape your staff if many of them leave when the owner sells the business. Transferring licenses and business ownership can also involve a lot of legal paperwork, but working with a third-party company can help ensure everything goes smoothly. You also don’t necessarily get control of location when you choose to buy an already established business.
Aspiring business owners have a lot of options available, whether buying a franchise or starting a business from scratch. Some business owners may also prefer to purchase an already established business. Each business idea has pros and cons, and reviewing these can help you choose the best option for your unique goals.