The Difference Between Starting A New Business And Buying A Franchise

What type of business should you start? A new start-up or a franchise? With so many business opportunities in every country, starting a new business or buying a franchise has always been the two options entrepreneurs go with. One is usually more expensive than the other, more certain of profitability than the other, and easier to execute than the other.

A new business has its advantages and disadvantages, and so does buying a franchise also have. But determining which to start up is based on a wide array of conditions that will determine whether the option you choose to go with is the best bet you can make.

If you’ve always wanted to know the difference between starting a new business and buying a franchise, do read on.

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Advantages Of Starting A New Business

1). Complete Ownership:

When you start a new business, you and your partners get to own it completely, without the worry of having to pay a certain amount to a larger entity for the rights to use the brand name, products, influence, and more to promote the entity.

2). Ability To Innovate:

With a new business, you can innovate in real time, introduce your creativity to the organization, and not be bound to a predefined set of operating rules.

3). Complete Freedom:

When you run your own business, you can start work at any time, work from any location, and grow your business to any scale you aspire towards.

4). Lesser Chance Of A Reputation Fallout:

With a self-run business, you determine how you manage your organizations’ activities, and so, its reputation. This way, you don’t run the risk of falling out of favor with customers if they suddenly hate a brand because a different franchised location was unfair to them.

Disadvantages Of Starting A New Business

1). Failure:

Failure is the most common trait of most new businesses, as compared to franchises. Since every new business would have to gain credibility in the marketplace, build a brand name, grow a loyal customer base, and a whole lot more, the failure rate jumps with the inability of most businesses to achieve this successfully, leaving franchises as a safer bet to buy.

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Advantages Of Buying A Franchise

1). High Success Rate:

When you buy a franchise from a reputable brand, you have a very high chance of running a profitable business from day one, since your franchise would be leveraging the existing popularity of the parent brand and would benefit greatly from its high-profit potential.

A great example is the Dominos Pizza franchise. In Nigeria, every new outlet that opens almost becomes an instant success. This shows the power of franchising and how it can help any entrepreneur build a successful business from day one.

2). Easier To Secure A Bank Loan:

Banks are more open to financing a franchise than financing a whole new business. They know new businesses require a whole lot to be successfully built up, and so, many of them end up in failures. This makes bankers prefer to rather leverage the power of franchising and lend money to experienced entrepreneurs who intend to buy one.

3). Great Learning Opportunities:

Running a franchise would enable you to learn and understand how world-class businesses are run. You’d regularly be educated by the head office of the business on their best operating practices, what makes them stand out, and how you too can be a perfect mirror of their organization.

By learning from seasoned executives, you can someday run a successful business of your own, if you choose not to operate the franchise anymore.

Disadvantages Of Buying A Franchise

1). Zero Freedom:

When you buy a franchise, you can only do what has been specified in the contract. Your ideas, innovation, and more become extremely difficult for you to implement, as you’re confined to a predefined set of rules and regulations to abide to.

Any violation of the conditions you’ve been given can amount to a revocation of your franchise license.

2). Fee Payments:

To run a franchise, you have to buy it. And to retain it, you’d have to pay on-going fees to the franchiser. The initial purchase fee is usually very expensive, after which you’d then be required to pay a moderate fee, monthly or yearly, as stipulated in your contract.

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What are your thoughts on the difference between starting a new business and buying a franchise? Let me know by leaving a comment below.