Independent business vs. franchise: What are the pros and cons?

By Gayle Bryant

Do you buy an independent business or go down the franchise path? Here are the pros and cons.

Owning a business is the dream of many Australians, but do you buy an independent one or go down the franchise path? Each type has its own pros and cons and what works best for you will depend largely on your personality and business goals.

Security of a franchise

For first-time business owners, a franchise makes the process simpler as you are provided with a tried and tested system, corporate support and suppliers. A franchise gives you access to a well-known brand, product or service, and reputation. Generally the franchisor provides assistance with research and marketing as well as with the shop fitout and purchasing of equipment.

One of the key advantages of a franchise is the brand recognition that comes with it. Most people are likely to know your brand so you can spend less time on marketing.

Another advantage is the need to follow strict controls, and this creates good discipline. Often businesspeople fall down because they are working too hard in the business rather than on the business and their financial reporting slides. A franchisor demands regular reports so trouble spots can be flagged early.

But on the downside you do have to toe the party line and operate according to the franchisor's rules, which means you don't have the freedom to make any changes. There are also ongoing fees and charges, so if you take a while to establish a cash flow, paying these may be difficult.

Independent business lets you make the decisions

The main attraction of buying an independent business is that all the decisions are yours. While you tend to have higher initial set-up costs, you do have the flexibility of making changes to suit your budget. If your cash flow is poor, for example, you can make decisions that will help with the situation.

One disadvantage is the uncertainty around launching new product lines. In a franchise, new products and services will have been tested, but the owner of an independent business doesn't have this security. You may also need to spend large amounts of time and money on promoting your product or service if it is a new type that no one has heard of.

Preference depends on personality

There is no conclusive proof that either business model assures success. For those considering which model to choice, it's better to evaluate each on its own merits and importantly ascertain which model suits your personality and business goals.

If you prefer security and the benefits of being part of a larger organisation, then a franchise is best. If you want control over all decisions, an independent business may be the preferred choice.

 

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