Becoming a business owner | 5 min read

Buying an independent business vs buying a franchise

Last updated: December 20, 2019

If you’re thinking about buying a business, you’ve generally got two options: buying an independent business or buying a franchise. The best option will depend on what’s important to you and what you want from your business.

Buying an independent business

An independent business is a business that’s owned by one person, or a small group of people (like a family or business partners).

Advantages of owning an independent business

  • Freedom. The greatest advantage of owning your own independent business is calling the shots. Because you don’t report to anyone, you have complete freedom and can make all the decisions. You choose everything from the business model, training, marketing and branding, to who you hire, where you’re based and how often you work. There are no rules for how much your business can expand and you can change the strategy whenever you want.
  • Cashflow. As the sole owner of the business, you get to decide where to invest your income. Because you don’t have to pay royalties or additional fees, more of your profits can be put directly into growing the business or even upping your paycheque. Similarly, if you do face cashflow problems, you have control over where money is spent and can delay projects or plans until the timing is right.

Disadvantages of owning an independent business

  • Limited support. Even if you do have a background in the sector and you’re taking over an existing business that has already had some success, you’re on your own from the start. Of course, you can (and should) build a network of other professionals to bounce ideas off, but when you’re faced with hard times, it’s all up to you.
  • No manual. In your own business it’s up to you figure out the best way to do things and there’s no manual to follow for what will and won’t work. This gives you great freedom, but the choices and changes you make to things like products and services can also have a huge effect on the success of your business. If you take a wrong turn, your business may suffer and you will be responsible for any fall out.

Buying a franchise

Owning a franchise means going into business for yourself, but not by yourself. You operate a business under the established brand of another business.

Advantages of owning a franchise

  • Tested model. All the hard work creating processes, pricing, procedures, products and services has already been done by someone else. Generally, this can help you avoid making expensive mistakes as you’re following tried and tested systems. It also means you can hit the ground running as soon as you enter the business and don’t need to spend time figuring out the best way to do everything.
  • Ongoing support. Franchisors provide a shoulder to lean on and invaluable support. They offer training, help with fit out, stock, marketing, supply chain management, operations, human resources and so much more. Having access to these resources can help you get going quickly and will continue as long as you’re a franchisee. Joining a group of businesses also gives you an immediate network of other owners to learn from and means you’re not left to make important decision on your own.
  • Brand recognition. Joining a well-known brand means your business will have brand awareness from day one. Having an established reputation, even if you launch in a new location can be a huge advantage. Big brands also tend to bring a strong customer following, so you can have business in the door from day one.

Disadvantages of owning a franchise

  • Limited control. Signing a franchise agreement means you’re committing to following the franchisor’s guidelines. While you’re definitely the owner of the business, you can’t change whatever you want, whenever you want. For example, a franchise agreement can restrict the territories you can operate in, your pricing structure and other key business decisions. Following the rules can mean less flexibility and creativity in the way you run and develop your business.
  • Ongoing fees. The benefits of owning a franchise come at a cost. Typically, you’ll have to pay an upfront fee to buy the franchise as well as other ongoing fees. These tend to be for things like marketing and training, as well as a franchise fee and other levies. While sharing the profits with the franchisor gives you access to benefits, they’re also costs you need to factor in, deduct from your own profits and pay even if you run into tough times.
  • Collective reputation. Joining a business with a well-known brand name can bring success, but it also means your business will be judged by the behaviour of others. Poor performing franchisees may impact on your success and the brand reputation of the entire franchise. This means your business reputation is somewhat in the hands of others and out of your control, which can be devastating if something unseemly happens.

How to choose?

Businesses succeed and fail every day and there is risk in every business purchase. So ultimately the decision to buy a franchise or an independent business will come down to who you are and your personality as a business owner.

Do you think of yourself as creative, innovative and independent? Or are you drawn to convenience and a ready-made support system?

If you can’t see yourself giving up decision-making control, then a franchise probably isn’t for you. But if you want a structured model and can get behind the brand, then you may be a franchisee in the making.

Similarly, if the idea of calling all the shots makes you uneasy, then an independent business might not be the way to go. However, if you love the thought of doing things for yourself, a private business may be calling your name.

Regardless of which way you go, it’s crucial to do your homework on every opportunity. You need to assess if your personal values are aligned with the business or brand and commit to doing your research. The more you know about yourself and what a business can offer, the more equipped you’ll be to make the right decision for you.

Think it might be time to own your own business? Check out our ultimate guide on how to buy a business.