Business startup vs. a franchise: comparing the risk factor

If you want to be your own boss and are comparing the prospect of a business startup vs. a franchise, be sure to take a look at the relative risks. A business startup can be risky business. According to data from the Small Business Association, 20 percent of small businesses fail in their first year and 50 percent fail by their fifth year. However, there are many reasons why buying a franchise usually carries less risk. Let’s look at four of them.

With a franchise, you’re gaining an established brand

It can take years to establish a brand and develop a base of customers. But buying a franchise gives you a shortcut: you get the benefit of a fully-formed brand identity, including logos, slogans, signage, marketing plans, and more. And in most cases you’re starting off with a known brand that is already familiar to consumers.

The franchisor has tested the waters

Mistakes can be costly and even embarrassing. On this front, there’s a big difference between a business startup vs. a franchise. With the latter, the franchisor has already gone through a period of trial and error in testing the business concept and figuring out the path to success. You’re not reinventing the wheel. You’re buying into a proven system and in most cases, the mistakes have already been corrected.

It may be easier to find financing for a franchise

Financing a business can be a challenge. There may be more hurdles to jump for a business startup vs. a franchise. You’ll need to develop your business plan and sell your idea to family, friends, and/or lenders. But when you’re buying a franchise, the franchisor (and your franchise consultant) can help you with the process. They can connect you with preferred lenders, provide references, and help you determine how much money you’ll need to raise in order to become a franchise owner.

Franchisees have built-in support

High-quality franchisors provide extensive support for their franchisees in areas including technical support, legal assistance, and peer guidance. They help with site selection, marketing, and sales training. And as a new franchisee, you can easily compare notes with other business owners (your fellow franchisees) who’ve already gone down the path you’ve chosen. Startups don’t have the benefit of this important safety net.

When you’re contemplating business ownership, it’s wise to take a good look in the mirror and figure out the degree of risk you can tolerate. If you’re looking for a safer choice, franchising might be your answer.