Finding a business: Franchising vs. the Independent Business
As a buyer, you have the option of purchasing an existing independent business or a franchise. Each has its strengths and weaknesses. To understand which type of business is best for you, you need to understand both the differences between these two business types, and your own strengths and weaknesses.
Franchises come with a set of rules that you must follow. The franchisor has taken the time to develop a business template, which is then rolled out from location to location. If you are looking to use your managerial skills, and won't feel cramped if you can't put your own ideas into play, this may be the ideal form of business for you.
Franchising offers many advantages. With a good franchise, the formula has been proven, and the kinks should have been worked out the system. Potential customers will probably be familiar with the name or brand of the franchise. For example, consider a popular coffee shop franchise. You may not have been to an individual franchise before, but you will likely feel confident that the quality of the product will be consistent with other shops. This consistency of product, store design and operations is the key advantage that a franchise offers. As a result a franchise may takes less time to establish a customer base than an independent business, which may in turn lead to bigger profits earlier.
“It's like a ready made business and all you have to do is play by the rules. You have all the experience and support of the franchiser,” says Richard Wise a Chartered Business Valuator in Montreal, QC.
Buying a franchise is quite different from buying an independent business, and is beyond the scope of this article. When you buy a franchise, many terms are non-negotiable. In “So You Want to Buy a Franchise” authors Douglas Gray and Norman Friend explain that while there is no standard franchise agreement, the agreements for each franchise can generally be considered non-negotiable, with the exception of items like location, exclusive territory, and opening date. If you are considering buying a franchise, “So You Want to Buy a Franchise” would be an excellent starting reference to pick up.
Buying an independent business gives you the freedom of setting your own rules. You set the vision of the company, control human resources, and get to choose which supplier you're going to buy from. In an independent business the decisions – and the success – of the business rest on your shoulders. There is room for creativity and innovation, but at the same time, your choices may destabilize the business. Unless you are buying a business with a strong, existing brand, you may not have the same recognition that you would get with a franchise. On the flip side, you won't have to pay franchise fees and royalties.
Some buyers look for failing businesses, which may be up for sale because they have hit upon hard times and their owners can't afford to keep them. These businesses can be a good buy, but you'll want to take a long and hard look at why the business is failing and whether or not you can fix these problems. Wise feels that many businesses can be turned around and in some cases a simple change in management will solve the problems.
|Introduction & Table of Contents
|Understanding yourself: a simple assessment exercise