The Difference Between Franchises & Businesses

When considering starting a business, most individuals explore franchise opportunities. On the surface it seems pretty self-explanatory: you pay a fee to franchise an existing business. But there is quite a bit more involved when buying into a franchise. The bigger question is, “What sets a franchise apart from other business opportunities?”

Recognizing the Difference

Buying into a franchise means that you are purchasing a brand that already exists. For example, if you were to purchase a McDonald’s franchise, chances are your clientele would recognize it immediately. If you buy into a non-franchised business opportunity, for example, a skincare program, you will need to spend additional time in the early stages helping your target market understand your products or services and why they should buy from you.

Understanding Your Customers’ Expectations

Customers to a new business probably will not have any preconceived notions about your product or service before purchasing. With a franchise, customers expect to have the exact same experience at your establishment as they would have at any other location of that particular establishment. The benefit of having a franchise in this situation is that you can expect a great deal of training, instruction and support to ensure that you meet your customers’ expectations. Independent business opportunities do not usually have the same level of guidance and support.

Considering the Cost

When it comes to considering the financial differences between owning a franchise versus a business opportunity, the most notable difference is that franchises usually require regular payments, or royalties. Business opportunities do not require royalty payments and in fact, this lack of required continued payment is how business opportunities legally separate themselves from franchises. Remember, with the franchise you’re buying into the larger, heavily-branded, existing company. That name and all of the funds that go in to keeping the business regionally, nationally and even globally relevant has to be recouped by the company. Royalties the franchisees pay help mitigate some of that overhead cost.
Independent business opportunities force you to find your own way to market and promote your services or product, one that is unique to your environment. While there may not be ongoing payments to a franchisee required, the branding and marketing costs spend comes out of your pocket alone.

Interpreting the Legalese

Speaking of the legal differences between franchises and business opportunities, franchises must comply with local and federal regulations and will provide paperwork called a Franchise Disclosure Document (FDD). They will also most likely provide more legal support and documentation throughout the purchase process than a business opportunity will. Standalone business owners still need to comply with other legal requirements, but the onus is on the new business owner and operator to determine what is needed to provide to be legally compliant.

Making the Right Choice for You

Both franchises and business opportunities are viable options for starting your own business and becoming your own boss. You can choose the immediate recognition provided by a well-known brand or the chance to pave your own way and develop a brand unique to your business. How can you choose? One great way to start is by speaking to an experienced business broker, who can advise you on the best opportunities for your situation.