Franchise Opportunity or Small Business Opportunity? Montrose CO

Many potential franchisees are lured into franchising opportunities by the often-cited statistic that nine out of 10 franchises succeed while nine out of 10 small businesses fail. That statistic comes from a study done by the Small Business Administration (SBA), according to the Boston Globe, but another study, also done by the SBA, shows that within 12 years, 75 percent of new franchise systems fail.

With such conflicting numbers, it can be difficult for investors interested in owning a business to determine whether purchasing a franchise and becoming a franchisee is a relatively secure investment or whether, since franchising is not in fact the risk-free investment opportunity it is sometimes made out to be, it would be better to start a business of their own.

What it might come down to is the personality of the individual investor. There is going to be risk involved no matter which method investors choose. But the benefit of purchasing a franchise is the proven system and the support offered by the franchisor.

"Franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators)," Dave Meholovitch wrote in an article for BusinessMart.

Franchisees are essentially saved the trouble of going through a potentially costly trial and error process when purchasing a franchise rather than starting their own business. Others have already found out what works and what doesn't and have come up with a specific system for franchisees to follow.

"A well run franchise would offer a turnkey business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting," Meholovitch wrote.

Purchasing an existing franchise saves time, but limits the options for investors Another benefit of franchising is that, when conducting due diligence, investors "can get an excellent picture of what typical experience is for an owner of [a particular franchise]. They will be receiving names and phones numbers of anyone [who] is doing that kind of business," Jeff Levy, a franchisee of The Entrepreneur's Source, said. "If they know what [they] are looking for in terms of their own financial goals as an investor, they should be able to determine by speaking to other people whether those goals are attainable."

If an investor has chosen to pursue franchising, they then have to consider whether they want to buy an existing franchise location or a new franchise location. Not surprisingly, there are pros and cons to this decision as well. Investors should take their financial goals into account when considering whether to purchase a new or existing franchise location.

"If the [investor] has a significant need for short term cash flow, t...

Click here to read the rest of this article from NuWire Investor