Should You Open a Franchise or Start Your Own Business?

If it’s time to escape the rat race and become your own boss, you may have to decide whether you want to launch your own independent business or run an established franchise. We’ve got some pros and cons to help you make an informed decision.

Funding and Royalty Payments

Trying to fund a new business can hamper many entrepreneurs from the start, especially if commercial lenders deny you a loan. The Federal Reserve Bank of New York reports there’s been a 4.7 percent drop in small business lending for requests under one million dollars. Franchises become a viable option when you don’t have a large amount to start your own business. The franchisor normally takes care of part of the expenses to start up a franchise, advertise and market it.

Owning a franchise requires you to make royalty payments for operations and support. You have no say on how you advertise the business and you can’t set your own prices for products or services. This is in stark contrast to being an independent business owner, where you have complete control of your business finances.

Name Recognition And Promotion

More people select the independent business route when they want to completely run all aspects of operations. Not everybody wants to put this much effort into marketing, advertising and operating a website, however—and with a franchise opportunity, the corporate office handles all that for you.

For example, if you’re a private real estate agent, you’ll have to develop your own logo and produce promotional materials such as business cards and mailers. If you’re with a national real estate company, they do all that for you. Of course, you can outsource logo development to a company like Logo Garden, and there are a variety of online printing services that can handle your printing needs.

Independent business owners need to provide their own business insurance, too. Small business owners who are sued in civil court have paid $35.6 billion in tort costs, according to the U.S. Chamber of Commerce study published in 2010. Legally protect your business for breach of contract, product infringement and other lawsuits by getting business liability insurance that can pay for legal fees and settlements. You can shop for insurance products and brokers of specialty insurance through the National Federation of Independent Businesses.

On the other hand, operating a franchise cuts out all the promotional and legal work because you are already with an established company with nationwide or global brand recognition and a set system of operations. You gain instant customer loyalty, because people recognize the product and service as something they can trust.

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