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Starting Your Own Business vs Buying a Franchise

The franchise industry turns over £13.7 billion per year and in the UK alone there are 930 franchised brands. Buying into a franchise offers stability and support but can initially be more costly in comparison to starting a brand new business. Business start-ups let you to control the business the way you intended, allow creativity and can reap huge rewards with a lot of hard work. Either way there is a huge amount of research to be done to establish the opportunity there is and whether it’s worthwhile investing your time and money. It will depend on your business style, business acumen and the type of person you are. Here are some of the main considerations to make when comparing startups and franchising.

Do you have a business idea?

A business idea stems from a ‘light bulb moment’, one where you realise a gap in the market, think of a new way or a better way to offer a service or where you can meet a need that no one has considered yet.

A great example comes from Steve Barnes who started As a student at Warwick University he himself felt the need for a new way to order takeaway and created an on-line booking system which made finding and ordering from takeaway restaurants easy as pie for him and his friends. If you've got something you feel could go far and you have a real passion for then making the most of the opportunity could be the way to go.

Don’t forget that if you have a great business idea you should protect it. A new idea is your intellectual property and it would be devastating to see anyone else run with it. Check out GOV.UK to protect your idea now.

Why start a franchise?

If you have an idea, franchising is still a way to set up your own business but there are fewer decisions to make off your own back. If you’re not so sure of an idea but you’re passionate about a particular industry or you just want to flex your business management skills, a franchise environment is one you might be more suited to.

There are plenty of challenges that arise from franchising and if you aim high and ensure high levels of customer satisfaction, you could see yourself managing a chain of your chosen franchise. Alternatively, it may spark the idea you've been looking for and get you some great experience in the meantime.

Buying a Franchise vs Starting a Business

Your initial investment is likely to be significantly higher if you choose to buy into a well-established franchise rather than start a new business. This is simply because the franchise will charge an initial fee for you to start up with them. What you gain is a reduced risk of failure and in some cases, help from the franchise to secure the funds you need to get up and running. It’s worth remembering that you will continue to pay royalties to maintain your franchise but again, you will receive ongoing support from the top including advertising costs and the reassurance that comes with a known brand.

When starting your own business you really need to make a solid plan which justifies any investment you seek. Barclays provide a guide to business planning and have a template you can use to get your ideas down in a way that shows the potential. You don’t always have to go after large investments though.

A Suit That Fits sells 15,000 suits a year and started life by using credit card loans and asking customers to pay up in advance of receiving their orders. The company therefore survived only on its cash flow, a route well worth considering if your business structure allows it. However you manage to keep your head above water, make sure you also have a long term plan so your business grows and does not remain stagnant.

Will I get support?

Naturally, there is a strong support network in place when you buy into a franchise. Subway for example, provides new starters with 2 weeks of training consisting of 50% of time spent in a classroom learning the brand. The other 50% of time is spent on sites learning the business environment. In addition, you will already have operational processes and links to partners and suppliers set up. You’re well looked after from the off. The downside to all of this is you don’t get the freedom to innovate, to try new things or build your own partnerships which can be extremely satisfying once you have the business up and running.

Starting your own business will allow you to make your own decisions at every stage. This will require a lot of hard work and know your stuff but ultimately, if you've got a business idea you’ll want to shape it yourself and watch it grow. So what support is out there for you? Good business is good for the economy so GOV.UK provide some valuable advice as well as a support helpline. There are also countless websites, tweets and posts offering advice to help you through the process, check out our example from @GrowthHackers below.

Research required for a franchise or starting your own business?

More than 500,000 people per year try to start a new business of their own - maybe it’s something to do with being your own boss. Unfortunately the success rate of these start-ups is not so high and there are many reasons why a business can fail.

What you should have before you dive into a new venture is a well-established plan based on research and fact, not a wing and a prayer. Start with an understanding of who your customers are and how you can reach them. Then test out your product or service on real customers, ones who will give you genuine feedback. It may mean you have to go back to the drawing board and repeat this process, but you’re likely to establish and quash some hurdles early on. Don’t forget your competitors too; think outside the box about whom they could be and how to differentiate your product or service from theirs.

That’s not to say that franchising means all your decisions are already made. The biggest decision you’ll need to make is which franchise you want to buy. You need to choose an industry you’re passionate about and a brand you can buy into yourself before you can start sell it to others. To gain some insight, it’s often a good idea to visit current franchises and if you can, visit a few at different stages of development and find out what their issues have been. It'll help you work through similar issues later on.

So, there is lots to consider and there is no real conclusion but some food for thought we hope. Irrespective of which you choose, you’re going to have to work really hard to achieve your dream so just make sure you’re dead set on your decision. Good luck!

Business insurance from Towergate

Whether you’re a large business, SME or sole trader, work from home or have a property empire - Towergate have got an insurance policy for you. For more information, visit our dedicated business insurance page.

About the author

Mike Stephens is a respected senior industry professional and Fellow of the Chartered Insurance Institute (CII) with well over 40 years’ varied experience in the commercial insurance sector as a director, underwriter, and operational improvement manager.

This is a marketing article by Towergate Insurance.

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