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Starting a Franchise or Independent Business, What’s Best for Me?

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Read this Guide on Deciding on Starting a Franchise or Going Solo with an Independent Business

Entrepreneurs and investors looking to open a business are faced with a difficult decision. Should I start a franchise, or work from the ground up with independent business? There are big distinctions between both options which will lead small business owners down very different pathways. Whether you want to open a restaurant or a pet store, eventually you will come to the crossroads.

Before figuring out which route to take, you will need to ask yourself some questions to discern which is your best option.

  • What is your business background?
  • What kind of experience do you have in the industry you are pursuing?
  • Do you work better with support and guidelines or do you have an unshakeable vision of what you want your small business to look like?
  • Do you have viable finances available to start your business?
  • Do you need support and training?
  • What are you passionate about?

Opening a small business is an inherent risk. According to the Bureau of Labor Statistics, less than 20% of businesses started in 1994 are still open. Many state that franchise success rates are higher than independent businesses, but the truth is, the failure rate is the same. Only 66% of small businesses will survive the first two years. An even more bleak statistic is that one-half of total businesses fail in the first year. Avoiding becoming a statistic and establishing a thriving business is contingent on the decisions you make as an owner. The first of these decisions is deciding the route of business you plan on pursuing.

Read through this list of pros and cons to figure out your plan of action.

Creative Control

The area that is arguably the most important aspect of going into business is the operational concepts that establish and build the business. A franchise has developed these operational concepts and proved them in the marketplace. Successful franchises have fine-tuned these operations. Independent business requires prospect small business owners to develop these themselves. For example, if you plan on a retail store you will need to find vendors, design an inventory, and secure a POS system to name a few tasks.

Independent Business

With an independent business, this responsibility is completely your own. The advantage of this is that you have complete creative control. You design your bottom line and you alone are the ultimate deciding factor in every choice that pertains to the future your small business, for good or for worse.

Franchisee

Since you are starting a franchise, the scaffolding of the business is already in place. Many think of this is as buying a business in a box but in actuality, it is much more intricate than this. You will have to follow the guidelines set up by a franchisor—many of these are in place to secure a franchisee’s success.

Finances

Opening a business requires a huge amount of capital. Construction on a storefront, purchasing equipment & inventory, and training a staff are just a few costs that small business owners have to contend with. Each option has initial start-up costs, but where they differ is in the methods of financing and division of funds.

Independent Business

Historically, future independent business owners will have to account for more extraneous spending than franchises. Higher investments costs are due to liabilities and the fact that operational tasks are being done for the first time. For instance, a retailer will have to find vendors for their initial stock order and will not be entitled to group discounts that franchise owners are eligible for. However, having more control allows independent business owners to forestall certain investments. They are not mandated to proceed with expensive construction or purchasing non-essential equipment.

Franchisee

A prospective franchise owner will need to meet financial requirements that the company has in place to ensure success. They will also need to pay a franchise fee and annual royalty fees. Still, franchise business buyers have typically lower investment costs up front. Since the franchise model is perfected, franchisors have configured how to open units in the cost-effective method possible.  This is advantageous.  But in place, the franchisor reserves the right to Experience Level impose enforceable costs like remodeling and timing of construction.

Experience Level

Regardless of the industry, you are venturing toward, you are going to need to have a comprehensive experience level of the market and business tactics necessary to own a thriving business. Your experience plays a huge role in deciding whether opening your own business or starting a franchise.

Independent Business

If your background is within the industry you intend to invest in, then going solo might be a considerable choice. Over the years you have gained insights into how a business operates in this particular market. Essentially, you can cut out the middleman because you are a veteran. You are comfortable being in charge of the creative aspects of the business and can effectively lead a team.

Franchisee

One of the beautiful things about starting a franchise is you can have very limited experience in a field. Learnability goes a long way in franchises. If you can follow a business template and execute a business plan that has been proven to work then you can be a successful franchise owner. You can bring your unique skill set to the table combined with the guidance derived from the franchisor. This will maintain a thorough expertise on your operation.

Brand Recognition

A business’s brand extends beyond logos and company culture. Brand tells the story of the business and helps consumers associatively identify with the product or service. An effective brand for a restaurant will tell customers what their food tastes like, the ethics behind the food cultivation, and creates trust between the restaurant and the customer. Corporate social responsibility (CSR) also pertains to brand. These days consumers engage with brands tactilely because of social media. This means constructing an authentic and well-perceived brand is vital.

Independent Business

Going solo means you have absolutely no brand awareness or loyalty. First, you will have to create a brand. Then you will have to market this brand. This means you need a great idea. Then hiring at least a graphic designer to design a logo, letterhead, etc. Again, since you are creating this you will have the ultimate artistic vision over your brand. Store design is also a major segment of a brand. You will need to compose these elements too.

Franchisee

This is a huge advantage for franchise owners. Before opening doors, consumers already have a brand awareness for the future storefront. This means franchise owners don’t have to spend any time devoted to developing their brand and can focus their efforts toward marketing and other operational projects.

Operational Resources

Depending on the type of business you plan on opening will decide what operational resources you will need. Almost every business needs inventory, staff, POS system, marketing materials, equipment, and a workplace. Whether you are a SaaS developer or a burger joint these items are essential.

Independent Business

Like a start-up, independent business owners will need to build everything themselves. The vantage point to this is having no constraints. You can ‘cookie-cutter’ different resources for your specific needs. For instance, you can choose what scheduling software you want to use with your employees and only pay for the functions you need. The downside to this is it will be time-consuming. There are dozens of tasks that need to be finalized before a grand opening. Each task needs to be foolproof to increase the chances of your business survival.

Franchisee

Owning a franchise isn’t about developing operational resources, it’s about training to use them. A franchisor will provide all the resources you need and usually have proprietary software to assist with scheduling, inventory management, and accounting. You will have these resources at your disposal.

The Bottom Line

The best way to decide is to take an introspective look at yourself. Which route would you profit in? If you’re a DIY person who does not handle following rules, well then you might want to consider doing the independent route. If you excel at taking a concept and utilizing the resources to grow a business, franchising is the right move for you. There is a reason military veterans make talented franchise owners. They have an ability to follow the instructions toward success.

Think long and hard before choosing, and good luck!

 

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What Makes Five Guys a Tasty Franchise Investment?

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The Origin of  Five Guys Burgers and Fries

The self-described ‘fast-casual high-quality’ burger restaurant was founded in 1986 by Jerry Murrell in Arlington, VA. Murrell is the chief executive and founder. The original concept was a burger joint, plain and simple. He started the first burger restaurant with his five sons, hence the name—Five Guys Burger and Fries. Murrell and his five sons have remained integral to the process throughout the entirety of the company’s growth.

The oldest son Jim helps oversee the entire operation while second in command (and age), Matt is in charge of opening new sites. Chad, next in line, does manager training across the 1400 locations in 8 countries while Ben is the IT guy. Tyler, the youngest, supervises the bakeries that supply Five Guys restaurants’ buns.

The Five Guys menu has not changed much over the years. Every franchise location offers various size burgers with a selection of 15 toppings. The company website boasts that there are over 250,000 ways to order a burger. Fries come two ways—Five Guys style or Cajun style. Hot dogs and veggie sandwiches are also available.  Other than the addition of milkshakes the menu selection has stayed true to the original wishes of Murrell and his sons.

Franchisees have attempted to expand the menu trying to offer additions like chicken sandwiches and coffee. After some trial and error, Five Guys has stood strong and maintained close as possible to core company concepts—burgers and fries.

  • Initial Investment: $152,000-$360,300
  • Net Worth Requirement: $500,000
  • Liquid Cash Requirement: $150,000
  • Franchise Fee: $25,000
  • Royalty Fee: 6%

Rapid Franchise Expansion

From the years 2006 to 2012 the company has grown 792% opening almost 1,400 locations in the U.S. and Canada. The franchise plans on continuing its spreading of the burger empire overseas. Locations have opened frequently in the United Kingdom and checkered across the rest of Europe.  200 of the locations are currently company owned with the latter 1,239 shops owned by franchisees.

In 2017, the company’s first quarter total income ended in $388.09 million. A typical Five Guys franchisee owns 10 to 15 restaurants which cost anywhere from $350,000 to $500,000 to open and on average make around 1.2 million in annual revenue. From this, an initial $25,000 franchise fee and 6% royalty fee is taken. The company has high standards—quality is everything, both in product and in the franchisee.

What Makes the Five Guys franchise appeal to the Masses?

Outside of intelligent business decisions, Five Guys has been recognized and awarded by varied media sources most notably the Washingtonian. In 2013, the franchise won the esteemed #1 Burger Chain Honor over Smashburger, In-and-Out, and Shake Shack.

Two famous political stories have added to the burger lore that already mystifies the company’s origins. The first is an order placed by the Pentagon for 15 burgers. Murrell spoke with an admiral explaining that the restaurant didn’t deliver and even went as far as hanging a 22-foot-long banner embroidering the words, “Absolutely No Delivery” over the restaurant. The admiral called Jerry Murrell personally telling him “Mr. Murrell, everyone delivers to the pentagon.”

Another anecdote in the franchise’s history is when former President Obama showed up a to a Five Guys in D.C. and ordered, “A cheeseburger with lettuce, tomato, jalapeños, and mustard.” Obama also ordered burgers for his team starting a series of articles about the love affair between the former president and cheeseburgers. This earned him the title President O’Beef back in 2009.  

What makes a strong and competitive franchise grow at the rate Five Guys has been able to? Strong brand, support, training, and consumer appeal.

What have other franchises in other industries share the same success story?

Splash and Dash Groomerie & Boutique  

  • Initial Investment: $110,750-$177,600
  • Net Worth Requirement: $350,000
  • Liquid Cash Requirement: $125,000
  • Franchise Fee: $48,500
  • Royalty Fee: 6.5%

Just as Americans go crazy for double cheeseburgers they do the same for their pets. In 2009, one man recognized the growing trends of dogs making their way from the backyard to the living room and began new concepts in the pet franchise.

Dan J. Barton became the founder and CEO of Splash and Dash for Dogs (now known as Splash and Dash Groomerie & Boutique). The company started as the answer to a market gap. Catering to pet parents who viewed their animals as more than just an animal. Barton himself was sick of taking his own dog, Mercedes, to industrial feeling big-box pet stores for grooming. The service was bad, the groomers were impersonal, and the pricing made it all seem not worth it. Barton began taking business concepts perfected in the Gym Franchising world and tweaking them for the pet industry.

The concept was simple. A convenient place that pet owners could trust to pamper and love their dog while they got a great cut and could purchase all the necessities of owning a dog. The stores smelled great. The service was warm and knowledgeable, Pets felt relaxed and the prices were fair.

Many became intrigued with opening a small business as a pet franchise owner during the Great Recession. The industry was impervious to the financial decline that was affecting the rest of the economy. The pet industry actually thrived during the recession growing 23.44% from the years 2008 to 2012. Not only was it a financially savvy decision, but franchisees found freedom in the haven of owning their own pet franchise—unrestrained by the limitations of corporate America.

From a franchisee perspective, it feels very similar to Five Guys—a model for success. Investing in Splash and Dash is a continuation of one’s professional development. Shop owners take their business minds, creative ideas, and passion for animals fused with proven business models to become leaders in their community.

With low investment fee, shop owners are able to break even after six months after opening. How is this done? With recurring revenue streams, uncompromising quality in service and products, and love. These core values create the atmosphere of every Splash and Dash location. When you sign on as a franchise owner, Barton and the corporate team help you along the whole venture.

Take it from the shop owner John, ” I spent 20 years in corporate America, and was completely burnt out. I was looking for something that I could do on a daily basis that made me happy. I love Splash and Dash because I spend my days being covered in slobbery puppy kisses and making my clients happy. There’s no better feeling than when you reunite an owner with their freshly groomed, clean furbaby! Also, the corporate office is always there when I need them – which is so important when you’re a new owner and learning as you go.”

 

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