What are the advantages and disadvantages of buying a franchise vs. buying an existing stand alone business?
Deciding whether to buy a franchise or buy an existing business can be a difficult decision because both a franchise and an existing business are alike in many ways:
Both are (presumably) successful business concepts. If they weren’t, you wouldn’t be considering them now.
Both require you to pay a premium to acquire that successful business concept. You’ll pay goodwill or franchise fees for the previous track record of successes.
Both have name or brand recognition. The existing businesses name may be recognised locally while the franchise will have local and possibly even regional or national brand recognition.
Both may provide some initial training. Training will be an inherent part of a franchise purchase. Training generally isn’t included in the purchase of an existing business but can be structured into the deal by retaining the seller to stay on for a period of time (vendors assistance).
Here are a few things that buying a franchise will give you that buying an existing business won’t:
Ongoing management support. One of the key benefits of a franchise is that the franchisor will give you management support for the term of the franchise. Even if the seller agrees to remain for a period of vendors assistance when you purchase an existing business, that is for a limited period of time. After that, you’re on your own.
More exposure. A franchise will usually provide more exposure to potential new customers through brand name recognition and national promotions such as email newsletters, website, and readymade marketing tools.
Lower costs. A stand alone business does not have the purchasing power of a group. Franchisors will negotiate with key suppliers, so you can all take advantage of group discounts.
Less risk. A franchise is based on a previously successful business model in many locations. In comparison, an existing business has no history or experience other than its own. Although an existing business is successful for the current owner, that success may not transfer over to a new owner (you).
Complete business system. A franchise will provide you with a complete business toolbox – operations manuals, training to teach you about operating the business and the tools to do it with – even if you have no prior experience.
In choosing between a franchise and an existing business, you’ll have to decide whether these extras are worth what you’ll pay for the franchise, versus the cost you’ll pay for the assets and goodwill of an established business.
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