Want to be your own boss but not sure which
way to go about it? Here, you can weigh up the pros and cons to see whether
buying a franchise or a business would suit you best:
One of the positives of buying a franchise
is the increased number of loan options available to you.
Brand names and a transparent track record
of cash flow are preferred by banks and other lenders, so choosing a franchise will
make it easier to secure funding. Franchises that have fewer locations may be
less attractive to lenders as they have not quite proven the feasibility of the
business in all types of environments.
The franchise will often provide
information and advice regarding financing the acquisition.
However, unlike buying a business, you will have to pay for
the use of their name through your sales (for example, McDonalds charges 5%)
and contribute to the national marketing spend.
You will also be asked for an initial
franchise fee, and you will need some working capital.
Similarly, success in financing the
purchase of a business will be determined by the type of business you want to
buy. If you go for a business that has had a rocky financial past, a bank will
be more reluctant to lend to you.
One of the slightly more tricky aspects of
buying a business is that you should be prepared to pay a larger proportion of
the price upfront – around 30 to 50 percent, and be able to finance the
rest. However, if you still want
to buy a business but don’t have the cash up front, there are several other
ways that you can do so.
You could co-op buy the business – maybe
with someone else who previously wanted to buy it but didn’t have enough money.
Lease with an option to buy is another possibility whereby a down payment is
made, enabling you to lease the business as a minority stockholder.
Implementing an ESOP (Employee Stock
Ownership Plan) would provide you with capital by selling stock to employees in
the business. You could also use the assets of the business to get financing
from factors, finance companies and banks.
When entering into a franchise partnership,
you will generally get a lot more support than you would buying a business. While
you will be expected to provide a business plan, they will help you in
implementing it. In doing so they will be able to give you an idea of how your
franchise could develop.
However, you will also have to consider
whether you are comfortable working under a franchisor’s control. For example,
if you wanted to introduce new products, you would have gain permission from
head office and the network of franchisees. As a franchisee, you aren’t an
independent business, but part of a much larger network.
You should also perform due diligence to
take note of factors that may have affected the development of other franchises
in the past.
As with buying a franchise, when purchasing
an independent enterprise you should have a business plan.
You should look closely at the current
owner’s business plan and take a lot of that on board. An amalgamation of your
own plans and vision, with existing practices that work will help you develop your
new acquisition successfully.
You should also conduct
a due diligence report on the business before purchasing it to consider any
issues which could affect its development.
If you are eager to shift the direction of a
business, buying an independent business, rather than a franchise is preferable
as you ultimately have more control.
A condition to this is if you implement an
ESOP scheme, or an equivalent, that involves selling voting (as opposed to
non-voting) shares to employees in order to gain capital.
The support network you gain is all part of
the charm of a franchise. As well as initial franchisor training and ongoing
support, you can look for advice from the other franchisees and discuss any
issues you may be having with others who are in the same situation.
You will also have a list of suppliers that
the franchise buys from and a network of customers who recognise and/or are
loyal to the brand.
On acquiring a business you won’t get the
same type of network as a franchise. However you may well inherit existing suppliers, customers,
financers and advisors. Whether you want to make the most of this will be up to
You will also often obtain a CRM system of
Both buying a franchise and a business can
be a risky venture, but there is one simple way to decrease risk: research!
And always make sure that you get expert
advice before purchasing a franchise or a business.
By Rose Hill, online journalist for BusinessesForSale.com, the
market-leading directory of business opportunities from Dynamis. Rose writes
for all titles in the Dynamis stable including PropertySales.com and