Pros And Cons To Owning Your Own Business From Scratch vs Investing In A Franchise

Pros And Cons To Owning Your Own Business From Scratch vs Investing In A Franchise
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You’ve decided that you want to start a business. You’ve tucked some money away and are financially stable. Now the only thing left to decide is whether to start a business from scratch or to invest in a franchise. There are risks involved with both and the final decision is one you should make with careful consideration. Listed below are a few pros and cons for each.

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Investing in a Franchise:

The Pros

A franchise is already established and the good news is that there is no shortage of franchise opportunities. That's a huge pro. People already know the name and enjoy the product or services provided. The startup fee is also much less than establishing a new business. If you are looking to make money quickly, a franchise is a way to go. Provided the business is located in a good area, you can start to make money almost immediately. This is especially appealing to someone who had just enough to invest in it and no additional reserves to cover extra bills and added expenses. When you invest in a franchise the product is already in place and you simply adhere to the guidelines established by the offsite owner. There are rules and regulations in place no nothing is left to chance. You pretty much walk into something without the need for brainstorming.

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The Cons

When you invest in a franchise you make the initial fee and then there are continuous fees that you need to pay the actual franchiser. While you may have the money for the initial startup you will have to take a portion of your income each month and pay it to the owner of the franchise for the use of their name.  In addition, you have no voice. If you disagree with a policy or a product you cannot change it. This can be something as trivial as the holiday store decorations. In order to remain a part of the brand name, you must follow procedures to the letter.

Operating Your Own Business

The Pros

When you have your own business, free and clear, you and only you are responsible. This means that you decide what time to open and close, what decorations are in the store, how to reach out to customers and what prices will apply. You can also make the necessary changes as you see fit as you settle into your business. If you have a product or service people enjoy your profits can reach a higher level then you ever thought was achievable. It's your business, your rules, and your product.

The Cons

Starting a new business from the ground up requires a lot of capital. Most people simply don't have that kind of money available. Unfortunately, a new business is also risky, not just for you, but in the eyes of a potential lender too. So borrowing the money you need to cover all the expected, as well as the unexpected expenses, can be challenging right off the bat.

Making the Final Decision

While owning your own business may cost more initially out of pocket and be a bit riskier than an established brand name, but, the potential for growth is greater. The rewards for doing it on your own are also rewarding. On the other hand, if you are not in the position to absorb the many fees that can apply to a new business, a franchise can provide you with a way to be an owner but without the day to day decisions needed to survive. In the end, it's a personal decision you make weighing the pros and the cons of both. Either way, you'll own a business and get the chance to let your true leadership abilities shine.

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Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at [email protected]
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