Buy In Or Start Up? Entrepreneurs Wonder If It's Better To Buy A Franchise Or Start A New Business
Americans with an entrepreneurial drive often have to consider what would be best for them: being part for an established network or starting everything from scratch. One gives the entrepreneur a chance to be part of a
community network, which can be helpful yet limiting. The other allows the entrepreneur to control every aspect of the business, which can be invigorating yet exhausting.
Startup and survival
The first few years of an independent business or franchise are rough. The cost of these initial years is also significantly different from costs down the road.
- The first 10 years of a new business. Percentage still operating: 1 - 75%; 2 - 64%; 3 - 56%; 4 - 50%; 5 - 45%; 6 - 40%; 7 - 37%; 8 - 34%; 9 - 31%; 10 - 29%.
-New business startup cost. The average cost of starting a new business is $10.000.
- Franchise startup cost. Buying a franchise or building a new location typically costs between $500.000 and $1 million.
- Subway startup cost. The price a franchise greatly varies. Subway, for example, has an initial fee of $15.000, and a Subway location can be opened for about $250.000.
Pros and cons
The choice between independent business and a franchise often comes down to what an entrepreneur wants more of: freedom or safety.
- Independent business: Flexibility; No provided health benefits; More than 40 hours of work a week; Freedom to choose products and services; Profitability; control of operating system.
- Franchise: Detailed marketing plan; Lots of legal documents; Corporate support; Bulk buying power; Fees; Brand awareness; long-standing training program; Established system of operation; Strict rules; company trouble
can impact local business.
The popular crowd
What are the most popular businesses these days? What are the most popular franchises?
- According to Ibisworld, these are the three hottest startup industries for the near future (keys: annual revenue growth, 2011-2016; annual enterprise growth, 2011-2016): Social networking dame development (annual
revenue growth, 2011-2016 - 24.4%; annual enterprise growth, 2011-2016 - 24.6%); Relaxation beverages (annual revenue growth, 2011-2016 - 24.8%; annual enterprise growth, 2011-2016 - 10.2%); Corporate
wellness services (annual revenue growth, 2011-2016 - 9.8%; annual enterprise growth, 2011-2016 - 8.7%).
- According to Forbes, these are the five franchises that give a franchise the best bang for their buck (keys: average initial investment, number of U.S. locations in 2011): Snap-on - 3.392 (number of U.S. locations in 2011),
$135.390 (annual revenue growth, 2011-2016 - 9.8%); 7 Eleven - 6.142 (number of U.S. locations in 2011), $393.800 (annual revenue growth, 2011-2016 - 9.8%); Aaron's - 1.749 (number of U.S. locations in 2011),
$420.725 (annual revenue growth, 2011-2016 - 9.8%); Panera Bread - 1.379 (number of U.S. locations in 2011), $1.447.770 (annual revenue growth, 2011-2016 - 9.8%); Servpro - 1.571 (number of U.S. locations in
2011), $156.250 (annual revenue growth, 2011-2016 - 9.8%).
Founding a new business or buying a franchise requires a lot of work and startup capital, so a small business owner should consider the risks and rewards of both before investing.
Sources: forbes.com; smallbusiness.chron.com; frannet.com; smallbiztrends.com; ibisworld.com.