To Franchise or Not To Franchise?

In this tight job market, if you have even the slightest spark of entrepreneurialism, the thought hascrossed your mind that business ownership may be your only path from poverty.As any small business owner will tell you, starting a business requires a significant investment ofcapital - financial and otherwise. Starting a new business from scratch may require less cashupfront, but expect to invest heavily in sweat equity and marketing to establish and build yourbrand. Even if you can accept the upfront and ongoing costs of franchising an existing brand, you'llstill need to establish and support the brand in your home market.

David Gast, owner of Beyond Storage, understands the benefits of franchise ownership, but after 20 years as a franchisee, he sought greater control of his business' destiny. "When my dad bought the franchise in 1985, most of us in St. Louis had never heard of 'custom closets' so, along with the brand we bought the expertise of those who had already established the concept elsewhere," recalls Gast. "By 2005, the brand had earned a reputation as "expensive" in the St. Louis marketplace, and corporate decisions were impacting my ability to compete on my home turf. When our term expired, I decided to establish a unique brand that I could control."

Each situation is unique, but many experts agree on a few rules of thumb to consider when evaluating starting a business anew versus buying a franchise:

1. Why do you want to own your own business? If you long to be your own boss, a franchise probably is not for you; you'll have far more control starting a business of your own.
2. What can you contribute to the business up front, in terms of cash, intellectual property, and sweat equity? If your ideal mix leans toward cash investment, buying a franchise may be the way for you to go.
3. How much risk are you willing to take? Some in the franchising field contend that franchised businesses fail at a rate of only 5 percent, compared to 30 to 50 percent for independent entrepreneurs. Other studies, including an oft-cited study by Dr. Timothy Bates of Ft. Wayne State University, have found that franchise failure rates actually exceed 30 percent. While franchising an existing brand may "feel" safer, the fact is, about as many independent businesses succeed as do franchises.
4. Obtain the advice of a trusted advisor. Attorneys, CPA's, or financial planners are usually the best advisors on various aspects of business ownership and how they may apply to your unique situation.