Why buy a franchise rather than an independent business?

By Sarah Stowe | 29 Oct 2015 View comments

If you are considering becoming your own boss, will you set up your own business or invest in a franchise? In this guide we look at the pros and cons of owning a franchise against the benefits and disadvantages of running an independent business.

The below is an extract of our full guide. Download the full guide.

 

 

 
“A franchise makes it possible for people who have never been in business before to run one successfully,” says Professor Lorelle Frazer, director of the Asia-Pacific Centre for Franchising Excellence at Griffith University.
 
A major benefit of being part of a franchise is support. “When we compared independent and franchised businesses during the economic downturn we found that support made a difference to business survival,” says Frazer.
 
“Group peer learning in properly facilitated education environments is one of the most powerful tools for franchise growth and profitability,” says Tony Arena, managing director of BCI Business Brokers.
 
However the benefits of a franchise come at a price; some people choose an independent business for the simple reason that it can cost less to start up.
 
But start an independent business and you’re effectively taking a gamble that there will be a market for a particular product or service. A franchisee can start out with both proof of concept and a brand.
 
“Brand is everything in a franchise,” says Arena. “As most franchises have multiple outlets, the brand is more apparent in the community, so there is more chance of the company growing exponentially.”
 
Any would-be franchisee should consider whether his or her personality will suit franchising; successful franchisees have faith in the system and are prepared to follow it to the letter. “Some people find having a franchisor worse than having a boss because of the restrictions the system places on you,” Frazer says.
 
“Compare what you could do for yourself with what a franchised system has to offer. If you decide to go ahead with a franchise, look closely at different systems to see exactly what you can expect.”
 
There are no definitive statistics to prove that franchised businesses are more successful than independents, though those which are available suggest that this is the case. For example, slightly fewer than half of all new small businesses that opened in 2009/10 were still operating three years later while the average tenure of a franchised business is seven years.
 
In the end though, only self-reflection and extensive due diligence will answer the question, ‘Is a franchise right for me?’