Start a Home Based Internet Business

Starting a Franchise

For many entrepreneurs, starting a franchise seems to be the best course of action. You need to do some research and find out if starting a franchise is the best option for you as opposed to starting a business from scratch before you invest any money.

The first question you need to ask yourself is what is your risk tolerance. A franchise business lowers the risk because someone else has already developed the business model, tested the concept, and made the mistakes to find out what works and what doesn't. If you don't mind the risk and you have the drive and determination to test your own ideas, then starting a business of your own may be the better choice for you.

When starting a franchise you will be required to pay a nonrefundable franchise fee up front. These fees range anywhere from a several thousand to several hundreds of thousands of dollars. In addition to the franchise fee, you'll have to pay to furnish your franchise with the necessary inventory and equipment. Depending on the type of business you want to start your upfront costs would probably be significantly lower than the required franchise fee and required inventory.

Starting a franchise you will also be required to pay royalty fees each month or each quarter based on a percentage of your profits. This is an additional expense that will cut into your net profits. Royalty payments would not be an expense that you would incur if you started and owned your own business. Some franchise owners after learning the business might resent the fact they need to continue to pay royalty fees. Because most franchise agreements have a non-competition clause that forbids a franchisee from becoming an independent business owner in a similar business, the franchise owner will have to continue paying royalty fees.

When starting a franchise you may be required to pay a set amount yearly for advertising whereas when you start your own business you will be the one to decide how much per year you want to spend on advertising. The franchise will determine where the advertisement dollars will be spent which may or may not be on advertising your franchise. When you own your own business you will need to experiment with different types of advertising to determine where your best return on investment will be for your advertising dollars.

When starting a franchise, you are not only buying the franchisor's name, you are also buying the business plan which means most franchisors impose price, appearance and design standards for their products or services which limits the way the franchise can operate. These standards are great for uniformity, but can also stifle your creativity and ability to cater to local tastes or needs depending on the product or service.

The key to deciding if starting a franchise or if starting a business from scratch is the best choice for you, is research, research and research.