Why Should I Open a Franchise Rather Than Open My Own Business?
America has always been the land of free enterprise, and the prospect of self- employment may sound like a dream come true. Imagine the schedule flexibility, the freedom to explore and expand while pursuing an interesting career. The alleyways of entrepreneurship are so vast that it can be rather daunting to entertain. What is the right business for today? What product is in demand? Which business model is most profitable? What concept is most likely to succeed? Potential owners also must consider that franchising may be a better option than small business start ups. Yes, when entrepreneurship meets franchising, the parameters change. There may still be freedom, but new franchisees find themselves absorbed into a preset business model with a tried and true support system.
It is no secret that owning a small business can be tricky and fleeting. The U.S. Small Business Administration reports that 65% of business start-ups (they don't define franchise) fail within five years. Any potential owner must ask his or herself, "Am I willing to invests my savings, my assets and potentially everything I have into my business?" Many have gone on the limb, using collateral as large as their own home to launch their startup.
However, consider the statistical value of franchising, which is certainly tantalizing to the capitalist's palate. It is estimated that there are more than 550,000 franchised units in the U.S. today, generating more than $800 billion in annual sales. In addition, franchising has a higher success rate than start-ups. The Department of Commerce reported that, since 1971, less than 5% of franchised businesses have failed or been discontinued each year. (This does not account for franchised businesses that may have been transferred to a new owner.).
The differences between startups and franchises are not always so extreme, but they differ most is in the risk threshold. The "ideal franchisee," however, is somewhat risk-adverse and willing to pay the mother company certain royalties and follow some restrictions to diminish the overall chance of failure.
So, before any aspiring owner plunges down the rabbit hole to entrepreneur- land, consider franchising. It offers the complete package of financial and personal independence in their career while maintaining a high level of security in their success rate.
Are you considering buying a franchise or will you start your own business? Comment below and let us know why or why not!
Watch out, Franchisees! 10 Franchisor Red Flags
Only a limited number of states require registration by franchisors, and franchisors are by no means required to register in states where they have no intention of selling franchises. However, if a mature franchisor appears to be consciously avoiding the registration states, this may suggest some level of internal concern about the FDD, the franchisor’s sales tactics, or the franchise system as a whole. The cover pages of the FDD will identify where the franchisor is required to register (and whether it has registered or not), and the charts in Item 20 of the FDD will explain whether the franchisor has ever sold a franchise in any of the registration states.
Franchise Mergers and Acquisitions
There are several reasons for franchises to consider acquiring another franchise. It could give them the opportunity to add new products without the risk or cost of developing these offerings internally. It could help the buyer add new markets, geographically or demographically speaking, with an already strong existing brand. Acquiring a franchise supplier or distributor could build efficiency through vertical integration. Acquisitions can also help a franchise develop sufficient scale to compete with a larger rival more effectively.
Social Media Tips for Franchisors and Franchisees (from a Franchise Lawyer)
No, these aren’t marketing tips. I can’t help you get more Twitter followers, and I can’t help direct more traffic to your Facebook page. What I can do, however, is provide information that might help keep you out of trouble while you do these things on your own.