There are a lot of options when it comes to making the move to own your own business. But which vein of the business ownership arena should you pursue? When you are deciding between buying a franchise and buying an existing business the choice can be difficult because the two options are so similar. In choosing between purchasing a franchise and purchasing an existing business, you will have to decide whether the extra features from either option are worth the opportunity cost that you will always have to pay for those benefits. Let us examine the similarities and differences between franchising and buying an existing business to help clarify the issue for you.
Similarities
Both are hopefully successful business concepts; in fact, if they were not successful concepts you would not be interested in making a purchase. Both are expensive and you will be expected to pay for those successful concepts; franchises may be even more costly due to the previous record of successes. The existing business will be well known in the immediate area, while a franchise will likely have both local and national recognition. A franchise will offer lots of management and operational support; while management support isn’t part of the transaction when purchasing an existing business, that support can be structured into the purchase agreement by requesting that the seller remain as an employee or consultant for the transitional period of establishing new ownership.
Differences
A core concept of franchises is continuous management support. The franchiser provides this support for the lifetime of the franchise. When it comes to purchasing an existing business, the seller can only realistically stay on as an employee or consultant for so long; the consulting period should be for a clearly outlined, limited period of time. And after the arrangement is over, the situation is sink or swim for the new owner of an existing business. Another core concept is pre-established marketing materials and procedures for franchises. A franchise, because of brand recognition, already provides exposure to new customers through the existing national advertising campaigns. Franchises offer cost sharing; expenses that apply to each franchise (for example advertising) may be pooled and have an advantageous group discount. Franchises are designed to help the franchisee succeed. An existing business only has its own history behind it; even if the existing business was successful with its previous owner there is no guarantee that the success will continue under new management.
In general, a franchise is a better opportunity for those who lack previous business experience. The franchise provides a complete business methodology and a training program to teach the franchisee about the business operation, the industry and field of interest, and the organizational issue that all businesses must face. This training doesn’t necessarily teach the franchisee about business in general – but specifically about running the business of the franchise. For those who have previous business experience and lack the start up capital that a franchise necessitates, the rules and regulations may have the independent-minded entrepreneur straining at the bit to spread his or her wings and fly. Overall, a franchise is more beneficial for those without a lot of experience who prefer having their business structured for them.
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