This article are provided for information purposes only, and are not intended as legal advice.


Differences between a franchise and an independent business

October 5th, 2008

If you purchase a franchise, you must follow the rules of the franchisor.  You must attend their training program, you must use their materials, their suppliers or designated suppliers, you must follow their rules and procedures and the appearance of the store has been probably built by the franchisor.  The franchisor may be on the head lease.  Franchises are excellent if you have never run your own business and are continually looking for guidance on how to run a business.  When you own a non franchise, you have no one to fall back on. You have to learn how to run a business, market the business, design your store etc.  You have no guidance and may have to try several times before you get it correct.  If you buy a franchise, they have figured out how to do things efficiently.

 

In a franchise, you pay a monthly royalty and also advertising fee.  Some franchises suggest that you market locally in addition to their marketing program.  The franchisor pools all advertising fees collected from the franchisee’s and can produces a larger and more expensive advertising campaign than from a single location.  Independent stores must advertise by themselves and usually do not pool their resources with other stores.

 

Independent stores do not have to continually report to head office.  They do not pay the monthly royalties and advertising fees and can purchase goods from any supplier that they want.  They do not have to be approved by the franchisor to purchase the business and they can sell the business to another investor without having to pay the franchisor a transfer fee.  Many franchisees make a living with multiple locations. 

 

Some franchisors require that you sell the business back to them.  Independent  stores can change product mix immediately and are not restricted by what they can carry in their store.  Franchises usually all market the same goods at the same price.  Independent stores can choose their own products and set their own prices, if there are slow moving products, they typically do not reorder them the next time and can make a sale to get rid of the slower moving goods without having to wait for head office approval.

 

Which one can you make more money from?  Some franchisees especially some ones who purchased a franchise when the franchisor was not well established can make significant profits if the idea was good.  Other franchisors are successful in foreign countries but they are not successful in your country.  Local stores can adapt to the immediate marketplace affecting their location.  Franchisees may or may not be able to adapt to their local environment, it depends on each franchisor.  Some stores may do very well as independents.


Filed under: Buy a business — Gary Landa @ 2:38 pm


2 Comments »


  1. Good writing. Keep up the good work. I just added your RSS feed my Google News Reader..

    Matt Hanson

    Comment by Matt Hanson — October 5, 2008 @ 2:45 pm

  2. Vb6tB4 Thanks for good post

    Comment by johnny — December 30, 2008 @ 9:28 am


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