If you are looking to start a business, you may choose to run a franchise to be your own boss. However, there are several reasons why being a franchisee may or not be suitable for you. To help you decide, this article will take you through the advantages of operating a franchise versus being an independent business owner.
Advantages of Running a Franchise
Existing Intellectual Property
One advantage of being a franchisee is accessing the franchisor’s existing intellectual property (IP). Access to a franchisor’s IP also means you inherit the goodwill and reputation attached to that IP. This is one of the main reasons people join a franchise. This is also a large portion of what you pay for when you pay a franchise fee and ongoing royalties.
Of course, it is possible to register your own trademarks as part of an independent business. However, building goodwill attached to this IP can take a long time.
A Proven Business Model
Another advantage of operating a franchise is accessing an already successful business model. This is received in exchange for initial franchise fees and ongoing royalties.
On the other hand, owning an independent business requires developing all processes from scratch. This includes:
- deciding what goods and services to offer;
- sourcing suppliers;
- designing a brand; and
- creating a marketing plan.
Building a business from the ground up is time-consuming. Making a new business stand out from others in the market can be extremely difficult. By buying a franchise, you instantly gain access to loyal consumers who are familiar with your product and know what to expect regarding quality.
Training and Support
Another advantage of franchising is the training and support that you receive. Franchisors have robust training plans that ensure their businesses are set up for success. This support ranges from theoretical training at the head office to on-site, hands-on guidance. In addition, Franchisors invest a lot of time into training their franchise owners because solid franchisees ultimately benefit the broader franchise.
On the other hand, as an independent business owner, you will only have a steady support system if you curate one. Depending on your business experience level, this will be an advantage or a disadvantage.
Advantages of Running an Independent Business
Personal Autonomy
One potential advantage to running an independent business is your degree of autonomy. For instance, a franchise agreement will carefully outline the franchisee’s obligations. These obligations cover all aspects of the business, including what:
- goods or services you sell;
- marketing materials you can use and how you use them;
- the inside of a store should look like;
- suppliers to use;
- businesses hours to operate; and
- accounting software you must use.
Again, whether this is advantageous for you will depend on your business experience and personal preferences.
Costs
Another advantage to being an independent business owner is the cost difference. Franchisees must pay an upfront franchise fee to the franchisor. This provides initial access to the business operations, training and intellectual property. Further, franchisees must also pay for ongoing use of the franchisor’s business model through royalties.
Usually, these fees will be worth their value. However, if you do not feel a franchise fee and royalties are worth what you are getting in exchange, operating an independent business might be a better option for you.
Length of Agreement
Another disadvantage of franchising is the length of the franchise agreement. Franchise agreements are only valid for a specified period and do not always have the option to renew. In some cases, it can be tough to exist the agreement before the franchise term is up.
Further, most franchise agreements contain restraint of trade clauses. Such a clause prevents you from operating a similar business for years after the franchise agreement ends. On the other hand, you can operate an independent business for as long as you want with no restrictions from a franchisor.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
Key Takeaways
There are various reasons why you should run a franchise instead of operating an independent business. Some of the key reasons operating a franchise is better than an independent business include that you:
- gain access to intellectual property with goodwill attached;
- can leverage the processes and operations of an established business model; and
- receive comprehensive training and support from the franchisor.
If you need assistance deciding if you should run a franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
Some key reasons operating a franchise is better than an independent business include gaining access to intellectual property with goodwill attached and leveraging the processes and operations of an established business model. Further, you also receive comprehensive training and support from the franchisor. On the other hand, independent business owners have more autonomy, do not have to pay costs to a franchisor and are not limited by a franchise term.
Franchisees must pay an upfront franchise fee to the franchisor. This provides initial access to the business operations, training and intellectual property. Further, franchisees must also pay for ongoing use of the franchisor’s business model through royalties.
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