Building a Business, Pros and Cons of Three Different Formulas

Obviously here at FranNet, we have a bias for the franchising formula when it comes to business ownership. We unabashedly love franchising and believe it is the best way for the average person to get into business for themselves.

However, we do acknowledge there are pros and cons to every type of business ownership. With that in mind, we will look at what the pros and cons are for three different types of business ownership.

1. Starting a new business from scratch

Starting a brand new business means starting with nothing. You have no building, no website, no brand, no employees, no registration. Nothing. However, starting a business from scratch can be done and is, in fact, done everyday in Canada.

Right now, someone, somewhere is starting their business from nothing and if you have that entrepreneurial spirit, you can too.

Pros
  • Everything is yours and you get to take pride in building something from nothing.
  • Your brand name and trademarks are exclusive to you.
  • You don’t owe any fees to anyone for using your brand name.
  • All the wealth you create is yours.
  • You have complete freedom to run the business the way you want.
Cons
  • It’s a huge risk to start a business from scratch.
  • Finding funding can be incredibly difficult.
  • You have to establish your brand’s reputation and win public trust all on your own.
  • If you are inexperienced, finding help can be potentially difficult and expensive.

2. Buying an existing local business

When you buy an existing business, you will get all the assets of the business and may want to continue with the business’ current brand or rebrand it to something you’ve come up with on your own. Buying an existing business can give you a bit of a head start.

Pros
  • The business is already established and you don’t have to hunt around for assets to start it.
  • If you choose to keep the same brand and that brand has a good reputation, you get the benefit of that goodwill.
  • It may be easier to procure funding if you already have some established assets you can use like a building and equipment.
  • You will be able to tap the former owner for market insights. (Neighbourhood demographics, seasonal high and low points, etc.)
  • You have complete freedom to run the business the way you want.
Cons
  • If you choose to keep the same brand and that brand has a poor reputation, you will have to overcome that reputation.
  • The business might no longer be viable in its current location, which is why the owner is selling.
  • If you choose to rebrand, you will have to establish your brand’s reputation and win public trust from scratch.

3.  Buying a franchise

Buying or joining a franchise is when you pay a fee to an established brand name franchise for use of its name in exchange for running the business according to the franchisor’s business model. You will also have to give a portion of your profit to the franchise.

Pros
  • Already established brand name.
  • Already proven business model that you just have to follow.
  • Support, usually in the way of:
    • Site selection
    • Building/leasing
    • Business coaching
    • Marketing and promotion
    • Training
    • Grand opening
    • Administrative support
    • Moral support
    • Financial support
  • Can learn from the experience of fellow franchisees.
  • More recognition of your brand from outside your own area.
  • If all franchisees are running their businesses well, the reputation of the brand as a whole benefits.
  • Procuring funding may be easier if you are joining a franchise.
  • If you have entrepreneurial spirit, but lack the resources or gumption to try to go it alone, franchising is a good compromise.
Cons
  • You have to pay fees and give up some percentage of profit for use of the brand name and business model.
  • Brand name is not yours.
  • Limited freedom in the way you run your business.
  • If some franchisees run their locations poorly or if the franchisor garners a poor reputation, it can reflect badly on your business because you are part of that brand.
  • If you choose to leave the franchise, you will almost certainly be bound by a non-compete clause so you cannot immediately open your own business in the same type of industry, meaning you could feel stuck unless you’re willing to try something completely new.

What type of business ownership works best for you depends on your goals and your comfort level with entrepreneurialism. As mentioned, there are pros and cons to each type of business ownership. If you do decide to join a franchise, FranNet can help you with a free FranNet franchise search and consultation today.

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