Comparing Independent and Franchise Models

There are some debates that will never be resolved—Apple vs. Android, Chiefs vs. Pirates, and of course, independent businesses vs. franchise operations.

At Merchant Capital, we understand your desire to find the best way to operate your business. To help you make an informed decision, we’ve compiled a list of pros and cons for both operating models. While we can’t choose for you, we can provide you with all the information you need before making a commitment. Let the battle begin!

What is a Franchise?

A franchise is a shared business concept operated across various locations. This can include a network of restaurants, a group of petrol stations, or a small operation with several branches or outlets.

Franchises operate within a structured framework. A central franchisor owns the brand and shares it with sub-owners known as franchisees, who manage each branch according to the rules set by the franchisor.

A great local example is Sorbet.

What is an Independent Business?

In simple terms, an independent business is free from outside control, whether from stakeholders or parent companies. They are typically privately owned, even if they are part of a network.

If you are running a business where you have the final say on all matters, then it’s classified as an independent business. Jackson’s Real Food Market serves as a good example.

Franchises: A Solid Foundation

Many aspiring business owners are attracted to franchise opportunities for several reasons.

First, you gain access to an established brand and a network of support. Unlike starting from scratch, investing in a franchise provides a clear set of guidelines, training on operations, and guidance from the franchisor, helping to ensure standards and brand consistency.

From a financial perspective, the upfront investment needed to become a franchise owner can be significantly lower than building a business from the ground up (though costs vary by franchise).

Since you are operating under an established brand, it’s often easier to attract customers and generate profit; most people are already familiar with the brand, which means the marketing groundwork has largely been done for you.

Additionally, you benefit from the collective buying power and distribution channels of the entire network, allowing you to enjoy competitive pricing without the need to negotiate extensively; much of the heavy lifting is already handled.

In Favor of Independence

Independent businesses offer owners the freedom to operate as they see fit.

You maintain complete control over every decision and are responsible for the business from its inception through to expansion and growth strategies. This means you also determine your income from profits—financial control extends to salaries, supplier partnerships, and material investments.

Being your own boss means you create the rules and can operate as you wish, provided you adhere to the law.

Downsides & Disadvantages

Both business models come with challenges that you should consider before choosing the right path for your needs.

Franchisees face two main burdens: profit sharing and a restrictive formula. As a franchisee, you pay a percentage of your profits to the franchisor in the form of royalties, which also set your performance and turnover targets. This can create pressure on your team and added stress for you if things aren’t going well.

Another concern is that you are essentially managing a business template. Innovative ideas, marketing strategies, and special offers must be approved by the franchisor, which can lead to frustrating delays.

Independent business owners also encounter challenges. While they enjoy true freedom, this comes with the responsibility for the business and the well-being of their employees. Your decisions significantly impact the lives of others, adding pressure to perform.

Another challenge is the cost of establishing your business. Beyond legal fees, you must account for rent and sales projections in your business plan and convince investors to provide the start-up capital based on trust alone.

Starting the investment process often forces individuals to sacrifice their assets or tap into pensions, which can be a risky choice if the business fails.

And the Winner is…

Ultimately, the choice of which business model suits you best comes down to your personality and appetite for risk.

If you prefer stability and are willing to sacrifice some control, a franchise might be the right fit; the added buying power and brand foundation can make franchises a potentially lucrative option.

However, if you have a compelling business idea and the ability to persuade others of its value, the freedom (and risk) of being an independent business owner can be quite appealing.

Take the time to plan your business carefully, and be realistic about your ownership needs before making your choice. Remember, we are always here to help finance your future—wherever it may lead.

‍