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Franchise versus startup: which is better for you?

by Jake Martin

3 min read

Entrepreneurship thrives during economic downturns, when people draw off their ingenuity and hard work. If you have limited business knowledge, or simply haven’t conjured that one great idea yet, you can make the most of your entrepreneurial spirit in a franchise. Alternatively, you might consider going out on your own.

What are the advantages and disadvantages of a franchise versus a startup, and which might suit you better?

Play to your strengths

If you like having structure and support in your work then operating a franchise may suit you perfectly. Franchises typically have clear operational and marketing guidelines, but these may also impact how much flexibility you have in how you run your business. For example, franchises like McDonald’s and Subway have promotional offers and even guidelines about how your kitchen should operate. Would you like fries with that?

If you do decide a franchise is best, you have plenty of choices. There are an estimated 1120 franchise brands operating in Australia, covering everything from food retailing to IT services. With so many options, you’re sure to find one that fits your skills and interests.

On the other hand, if you thrive on autonomy and being accountable only to yourself, then building your own business from the ground up may be more suitable. While the decisions are all yours, the stakes are high, which can place a lot of pressure on you. You may find that following your passion or big idea outweighs the inherent risks and challenges of startup life.

Scale at your pace

It’s not always possible to predict how successful your business will be, and a franchise may give you more control over how quickly you scale. Because franchises already have brand awareness, you may find it easier to build and market your business from the get-go compared to an unknown startup. As franchises have a standard operating procedure, it may also be easier to expand your business by opening up other stores.

As a startup is an unknown brand, you may have to knock on some doors before getting your first break. Demand for your product could be a lot slower than you had anticipated, or snowball with little warning. This can make planning for business growth more uncertain. If your business is one of a kind, the opportunity for growth when it takes off may be huge – after all, both Microsoft and Amazon began as startup ideas.

All in or ease in

If you still have your day job, it can be challenging to start a franchise or launch yourself into a new business. Running a franchise is usually a full-time job, but there may be more flexibility to hire staff to build your business with the additional support and structure it provides. While you can build your startup on the side, they are generally more engrossing, and its growth will depend on the hours and resources you put into it.

Your upfront capital and ongoing expenses

Both franchises and startups will require some upfront capital, but generally a franchise will have higher fixed investment costs. Most franchises include an upfront fee to buy into the brand, and there are often ongoing fees and royalties associated with running the business. As franchises also have strict branding requirements, you may have large periodic expenses to refurbish your shopfront or purchase promotional materials. On the flip side, the franchisor can obtain bulk discounts on inventory for franchisees.

Startups have more flexibility with the amount of upfront capital required, and you can control ongoing expenses. After all, Dell and Mattel both found their initial success in their founders’ garages.

Whether you prefer the support and structure of a franchise, or the autonomy and excitement of a startup, both come with their own entrepreneurial challenges. Building your own business isn’t easy, but it’s certainly a rewarding experience.

To read more articles related to starting a new business, visit here.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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