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Buy a Business? A Franchising Business vs a Start-up Independent Business.

Updated on December 28, 2013

Dreaming about your financial freedom?

Why do franchises have a business failure rate lower than an independent start-up business?

There are many sources of new business information on the web, some of it good and some not. It is a well known fact that starting a business is extremely difficult and there is a very high failure rate. It is also commonly known that, if you pick the right franchise, a start-up franchise has a better chance of success than starting up an independent business. Although this axiom is statistically correct we need to look beyond the numbers to see why it's true.

What's more important..... what a franchisor makes you do or what they prevent you from doing?

Often a start-up business struggles because the owner doesn't have experience in business or in this specific type of business.

One reason for a lower business failure rate if you open a franchise instead of beginning a start up business is certainly the "systems" a quality franchisor provides their licensees. These often well thought out business systems save the franchisees money and gives them a head start vs just starting the business on a note pad. Basically a good franchise should prevent you from making mistakes you would make if you were not in the franchise system.

One critical reason a start-up franchise is less likely to fail is the discipline a good franchisor puts on accepting you as a franchisee. Here's what a good franchisor WON'T let a new franchisee do:

  • They won't let you become a franchisee if you are under capitalized,
  • They won't let you pick a terrible location even if it is near your home.
  • They won't let you use inferior suppliers
  • They won't have your customers train you, THEY will train you
  • The won't let you put up a cardboard "open for business" sign in your window
  • They won't let you "kind of open", you know part-time
  • They won't let you NOT advertise
  • They won't let you start without a business plan, a real plan, not just an internet "Biz plan in 10 minutes" plan.
  • They won't let you start without a cash flow forecast the sees an acheivable path to positive cash flow for the business and you.
  • They won't let you ignore the power of the internet or Google, a good Google ranking can go a long way to recession-proofing your business. As the saying goes, the economy is always better on the first page of Google.

As you can see from this list, none of the items have anything to do with the franchise product or service. These items could apply to a medical staffing franchise as easily as to a non-franchise sandwich shop.

If you applied the same discipline to starting an independent business start-up your chance for success would also be higher. Keep this in mind, most businesses fail because the owner made a series of decisions that were bad decisions that could have been avoided.

The point is franchises have a lower business failure rate than start-up independent businesses not because the franchise has some great product or service. The lower business failure rate is because the franchisor prevents the franchisee from doing the things that lead to failure. Bascially, the franchisor protects you from yourself. Here's a good resource for evaluating franchises:

Market Research for Better Success

Even If you are convinced you want to start up a non-franchise business I highly recommend that you investigate high quality franchises so you can learn what it takes to reduce your chances for failure....which is always a good thing.

Keep in mind that if you start an independent business you will likely compete with a similar franchise concept. Doesn't it make sense to investigate what a franchise has to offer before they become the enemy?

Finding available franchises for sale is very simple on the internet, however, be careful and understand that when you leave an inquiry/request you will likely hear from a salesperson or maybe even many sales people. Many internet companies sell their leads for franchise buyers, and they will likely deem you to be a lead.

Do your homework and get good advice and good advisers when you explore your new new business information.


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