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Business startup vs. a franchise: comparing the risk factor

By FranChoice Blog | May 8, 2019

business startup vs. a franchise

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.

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Researching a franchise: 4 things you can’t find online

By FranChoice Blog | May 1, 2019

researching a franchise

If you’re interested in becoming a business owner, you may be in the process of researching a franchise. Starting the process online can be useful. There’s a lot of information available to help you explore the wide range of options. But to get a fully informed view of which businesses are right for you, you’ll need to step away from your computer.

Here are 4 important things you need to know that you can’t find online.

Your strength as a candidate

Your strength as a candidate is based on many factors, including your skills, experience, and financial qualifications. If you lose sight of this while researching a franchise, you can easily waste hours looking at businesses you’re not suited for. Working with a franchise consultant is a great way to make your search an efficient one. A consultant will help you assess your abilities and desires, and create a financing action plan based on your credit score, liquidity, and net worth. S/he will then match you with suitable franchise opportunities and help you down the path of finding your perfect fit.

Whether there’s availability in your area

It’s a common occurrence: when researching a franchise, you get excited and enthusiastic about a specific opportunity that ultimately turns out to be a dead end. In some cases it doesn’t work out because you don’t qualify, but in others it’s because there’s no available territory where you live. Working with a franchise consultant can save you time, trouble, and disappointment. The consultant will conduct territory checks on businesses available in your market.

How much money you’ll make

Not surprisingly, most people researching a franchise want to know how much money they can expect to make. And the best way to get a solid understanding of a franchisee’s income potential is through conversations with franchisees and careful review of the Franchise Disclosure Document (FDD). Generally, franchisors provide FDDs to prospective franchisees after one or more qualification conversations. Be aware that it’s optional for franchises to make a written earnings claim or “financial performance representation” in their FDDs, and in some instances franchisors do not make them.

Nail down as many financial details as you can with the franchisees. What does it really cost to open a unit? How soon can you start making money? How much can you expect? In many cases, only franchisees can give you the real story.

The corporate culture of the franchise

A Google search can’t help you determine how well your values align with any particular franchise. To figure out what you have in common with the company’s franchisees (your future peers and colleagues), you’ll need to speak with the franchisees themselves. What do they think of the training and support provided by the franchisor? How focused is the organization on helping franchisees thrive?

 

While researching a franchise can seem overwhelming, there’s actually a well-tested method to the madness. A qualified franchise consultant will help you narrow the field and efficiently find the business opportunities that fit you perfectly.

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