Should I Buy a Franchise or a Main Street Business?
You’ve decided to purchase a business, but you aren’t sure which way to go—a “Mom-and-Pop” main street business, or a franchise. There are pros and cons for each, which are relative to your individual goals and objectives. Over the years of selling businesses, I have found that those whom prefer a franchise versus those whom prefer an independent concept are usually wired very differently. So, in considering which business type is best for you, consider the following.
In most instances, you are buying a proven concept with a blueprint—all you have to do is follow it (at least in theory). However, keep in mind, for the majority of franchises, that blueprint is fairly concrete. Meaning, you have to live with whatever the franchise has, and/or puts, in place. That includes décor, recipes (if applicable), royalty fees, prices, vendors, etc. You cannot alter those items or add your own spin on things. Be sure to weigh that factor seriously, and make sure you can live with that.
The upside of that blueprint, though, is that if you aren’t sure how to get a concept of your own started, all of the upfront work is done for you. That can be a huge plus for some aspiring business owners who may not consider innovation, systems, or concepts to be their strengths. You also, hopefully, receive ongoing training and support from the franchise in various areas such as marketing and advertising.
Most franchises require training and approval for a new franchisee, and you may also incur an initial franchise fee. Those franchise fees vary, but are usually somewhere between $10,000—$25,000 if the business is being transferred to a new owner, but they can be much higher than $25,000 if it is a brand new unit. You want to factor that extra cost into calculating how much capital you have available for a purchase.
Lastly, you must remember that you pay for that proven concept and blueprint by means of royalties. Those royalties vary by franchise but are an additional expense you will incur, most likely each month. So, this is another expense you want to factor in when you are thinking about what your required and/or ideal net profit is while evaluating franchise opportunities.
A Main Street Business
The independent concept, aka a “main street business,” is one that is not a franchise. Think of the local businesses you frequent—your dry cleaners, your barbershop or salon, your deli, etc. Though they are not typically franchises, that business owner has still created a proven concept if he or she has been in business for a number of years.
In the same vein as previously mentioned for the franchise, you are most likely still buying a proven concept with a blueprint that you just have to continue (again, at least in theory). The difference is, once you purchase a business from a Seller, you have the opportunity to add your own touch—you can change the décor, you can change the name (if you want), you can tweak the menu, and the list goes on and on. You are not locked into a concrete concept that cannot be altered.
For some buyers, especially those who are more entrepreneurial, this is a motivating factor for buying a main street business because they know what they can add to the existing concept in order to turn it around and/or grow it further. For others, especially first-time buyers, that can seem like a daunting task, especially if there is no ongoing training or support like what the franchise offers—at least that is what they assume.
In many cases, even after the included post-closing training a seller provides to a buyer is completed, many sellers are happy to work with the buyer for extended training, even as a consultant in some cases. You, as the buyer, would just need to ask the seller if he or she is open to this (an ideal time is during due diligence) and then work out a mutually agreeable rate of pay and outline what the Seller’s role and responsibilities would be. So, you can possibly still get the desired long-term training and support you want—it’s all in what you negotiate.
Lastly, with a main street business, you are not going to incur any additional expenses such as the franchise fee and/or royalties. For some buyers, that is a plus if they are looking to maximize what the business profits.
Ultimately, what makes a business the right opportunity for you is completely subjective. You want to think about what kind of growth opportunity you are looking for, you want to evaluate your strengths and your weaknesses, and you want to factor all of the financial criteria—what you have available in liquid capital, what you need to profit at a minimum each year, and what the business has historically generated, while also considering the business’s future earning potential.
Once you have considered those items, then you can begin exploring what opportunities match up to your criteria and goals. If you want to explore businesses for sale in Florida, click here. For additional information or questions regarding how to buy a business, contact me, Terri D. Sherman, PA, at 888.925.5055 x 207 or fill out the contact form on the contact page of this Website. Let us get to work and help you “mind your business today”!