Six Benefits of Investing in a Franchise vs. Starting a Company from Scratch

Published on
July 25, 2022

Considering investing in a Franchise. Owning your own business is the American dream. But starting a business is fraught with risks and unknowns. For many, the most significant consideration is starting their own business from scratch or investing in a franchise. But which way do you go? What are some of the considerations? Here are six (6) advantages of opening a franchise:  

1. You're Investing in a Proven Model

In buying a franchise, there is much less trial and error, especially with a franchisor that already has hundreds or even dozens of locations. They’ve taken a lot of guesswork, that is, risk, out of owning a business that you’d likely encounter with starting a business from scratch. Unfortunately, some of this trial and error could bury a new start-up and cause it to fail. Most franchisors have effective training programs for new franchisees. They will have proven processes and procedures, defined supply chain requirements, handbooks and policies, extensive marketing & advertising, and often ongoing support.

If you are highly competitive, what to change the world, and have something to prove, go for it and start your business from scratch. However, like most of us, our risk tolerance is a bit lower.

2. It’s Easier to Obtain Financing

Most lenders will not give loans to businesses they consider to be risky. And small, untested start-ups are typically deemed to be very risky because most of them fail. In contrast, a proven franchise concept is seen as a part of a successful system that is much less likely to fail because a new franchise location is not that much different than the many that have opened before them. Banks can validate the potential success and deem these situations substantially lower risk.

3. It’s Less Expensive to Start

With a new start-up, you burn a lot of cash developing your product or service, marketing, and advertising to find customers, and you will find many costly mistakes you make along the way. The amount of cash you need can be extraordinarily high. It will likely be difficult to accurately estimate how expensive things are because you will be doing them for the first time.

As part of their legally required Franchise Disclosure Document, franchises will provide a lot of the information on what you can expect the costs to be, so you know exactly what you are getting into when it comes to buying a franchise vs. starting a business. In addition, during training, you will learn the most effective and efficient approaches that have worked well for other franchisors.

4. Extensive Experience is Not Necessary

Starting your own business from scratch without the proper education and/or experience is very risky. So you already understand the market; how to create a business plan; hire, manage and train staff; understand sales, marketing, purchasing, operations, reading financials, and more; then go for it. 

With a franchise, it doesn’t matter whether or not you know the industry, markets, and customers. The franchisor’s team already has that knowledge to impart to you.

Experience and expertise aren’t necessary with a franchise because the franchisor will give you and often your employees extensive training. If you aren’t a natural sales and marketing person, many franchisors will do that work for you. 

5. An Established Brand Has Its Benefits

Getting customers is often the most challenging task of any new business. Working with a franchisor that already has an established brand and has built up credibility in the market has enormous value. It makes attracting customers much easier and much less expensive. A franchisor will likely have to invest in substantial advertising and marketing for you. And they know what it takes to develop new territories. 

Unless you already have existing connections, with a new start-up, it takes substantial focus and expense to build your brand, find customers, and develop your marketing. You may have the best product or service out there, but if you don’t know how to acquire customers, your new start-up business will fail quickly and deplete your bank account.

6. A Community You Can Rely On.

Most franchisors provide numerous networking opportunities for their franchisees. Most encourage your participation because they know that as hard as they try, other franchisees will discover new things that have value in sharing with others. Knowing you have not just the franchisor but maybe dozens or hundreds of other franchisees you can rely on for support can be priceless and a key to your success. New start-ups will generally have none of this – you are alone and on your own.

Want More Information Investing in a Franchise

As you can see, there are many advantages to investing in a franchise over starting a business from scratch. So give us a call at Elevate Franchise Brokers today to see how we can help you find the best franchise concept for you. Or, schedule a call with our franchise expert, Jay Friedman.

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