Saturday, June 15, 2024

Franchise vs. Starting a Business: Making the Right Choice

 I received a question from Sarah and Bruce years ago, both asking if it's better to buy a franchise or start a business from scratch.

Sarah wanted to know if it's better to buy a franchise or start a business, while Bruce specifically asked about the benefits of buying an existing franchise versus starting a business from scratch. Let's dive into the discussion. Watch the full video here:

Starting from Scratch: The Risk Factor

First off, starting a business from scratch is inherently risky. Many new ventures fail within the first year due to a lack of systems, processes, and adequate financing to sustain operational losses until reaching the breakeven point. While it's not impossible to succeed with a startup, it requires careful planning, execution, and a significant amount of resilience.

Franchise: The Appealing Option

Franchises often tout a greater success rate compared to independent startups. However, this claim comes with some caveats. Not everyone can afford to buy into a franchise; it typically requires a certain level of wealth and net worth to qualify. Consequently, franchise owners may have more resources to weather the storm if things don't go as planned.

If you're leaning towards the franchise model, it's generally advisable to buy an existing franchise location rather than starting a new one. Why? Because launching a new franchise is akin to starting an independent business—you need to attract customers who are already patronizing existing establishments. Buying an existing franchise allows you to analyze its performance, including sales and profits, providing a clearer picture of what to expect.

Ultimately, whether to buy a franchise or start from scratch depends on your preferences, risk tolerance, and financial situation. Franchises offer a sense of belonging, operational guidelines, and potentially higher success rates, but they come with restrictions and ongoing fees. Conversely, starting a business from scratch offers freedom and creativity but requires a significant amount of groundwork.

If you're considering buying a franchise, opt for an existing location with a proven track record. This mitigates some of the uncertainties associated with launching a new venture.

If you’re still on the fence about the Buy vs. Startup question, check out my new book which is being released this fall. Pre-ordering is now available on Amazon. 

Buying vs. Starting a Small Business: Search or Startup. Find it in my amazon store


David C. Barnett

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