Starting a business comes with many decisions, including having to choose a business structure that is best suited for you and aligns with your business goals. There are benefits and disadvantages to each type of business strategy to consider as you develop your business plan and make a final decision that is right for you. One option is franchising, a business model in which the franchisor sells the rights to a franchisee to operate a business that sells their goods or services under the existing brand. Franchising is a popular way for an entrepreneur to start a business with an established company’s brand name rather than starting from scratch and building your own brand. 

PROVEN PROFITS  

Franchising can be an attractive way to start a business, as the structure is already established, and the brand has credibility and recognition in the market. With franchising comes the initial and ongoing support of the franchisor in the form of training, access to vendors, and marketing programs. A few other benefits to franchising include:  

Established Brand & Economies of Scale 

Franchising allows you to leverage an established brand which can help attract customers and increase the chances of success for your business. Additionally, franchises can often negotiate better prices when purchasing supplies due to an increased purchasing power.   

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Training Support 

Franchisors are responsible for the training and ongoing support of all of their franchises. This helps ensure operational consistency and success of the business. Franchise owners will have access to support and training in all areas of the business including marketing, staffing, inventory management, and customer service. 

Proven Business Model 

Prior to operating as a franchise business, the franchisor must have proven the business model and its success. A franchisor must hit a certain amount of locations before the business can be considered a potential opportunity for franchising.   

Access to Financing 

Banks and private lenders may be more inclined to lend to franchise businesses due to their proven track records and established brand. The credibility of an established franchise business may make it easier to secure funding rather than taking a chance on a new independent venture.   

OPERATIONAL LIMITS 

Although franchising has many benefits associated with it, there are challenges that should be considered during the decision-making process.  

Initial Investment 

Franchisors often require a large initial payment when you first sign the franchise agreement in addition to other costs such as buildout and equipment costs. 

Loss of Independence 

Franchisees must follow the guidelines and rules laid out by the franchisor. All decisions are made and directed by the franchisor which reduces creativity and independence for the business owner. 

Royalties & Fees 

As part of the franchise structure, the franchisee will be required to pay a royalty fee to the franchisor based on a percentage of revenue. The percentage can range depending on the type of franchise business and can reduce the profitability of the business.  

Lack of Flexibility 

Franchisors often require all locations be operated the same which may reduce the ability for a business owner to make decisions and changes to adapt to market conditions. Most franchisors require the franchisee to sign some sort of an contracted agreement.  

PROS & CONS 

As an independent business owner, there are many benefits such as the potential for greater profits, having full control over decisions, and the flexibility to make changes to adjust to market conditions. Although the start-up costs may be greater in the beginning stages of the business, in the longer term, the profits may be higher as there are no ongoing royalty fees. Additionally, when it comes time to exit the business, the opportunity to sell for a higher price and retain the profits are greater.  

In a franchise system, the franchisor will often specify almost every aspect of the business from the design of the space to the way the staff is paid. Owning your own business means that you will have the ability to make quick decisions and will have full control over all decisions in terms of the design, branding, and operations which can create the opportunity for more creativity. However, starting a business from scratch does come with a higher risk of failure as new businesses can face different challenges such as lacking the brand strength of a franchise, the ongoing support, and access to operational resources.  

Building a business from scratch takes an immense amount of time and dedication. Once the business begins operating, as an owner, there is an increased amount of accomplishment and pride as the feeling of building every aspect of a business is very rewarding. Both business strategies are supportive of a successful business if managed appropriately. Deciding which is best suited for you will come down to considering all factors such as lifestyle, finances, and time.  

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Lindsay Miller is the president of LYCON Wax North America. Having first discovered LYCON Wax in the United Kingdom 10 years ago, she has dedicated her time to growing the brand across North America, including introducing LYCON to Canada. Training and product quality are extremely important to Miller and she prides herself on building a strong team around her that can offer the best customer experience possible. LYCON continues to be a market leader in hair removal wax and is used in top spas and salons around the world.