Skip to Main Content

Is Buying a Franchise Less Risky than Starting an Independent Business

Charles N. Internicola explores the topic of buying a franchise versus owning an independent business. Many entrepreneurs face the decision of whether to sta...

Are franchise businesses more successful than independent businesses?

As an aspiring franchise buyer, you’re probably wondering whether franchise businesses are more successful than independent businesses – and if they’re less risky to invest in.

Although it can be tempting to look for answers online, the information returned by search engines is often unreliable – and sometimes misleading. Search results often include articles containing unverified claims about franchise success rates alongside overgeneralized industry statistics that ultimately say nothing about the risks of owning a franchise on a micro level. Because of that, it can be difficult for franchise buyers to find trustworthy information about the risks and rewards associated with owning a franchise business online.

In this article, we’ll explore strategies for evaluating the risks of buying a franchise business – and parsing through the sometimes misleading industry research that’s often cited online.

Exercise caution when conducting online research

Many online sources comparing franchise businesses to independent businesses claim that franchises are more successful due to their proven processes and brand recognition. However, in reality, that isn’t always the case. The success of franchise businesses and independent businesses both depend on a variety of factors – many of which are unique to the individual businesses and the people running them.

When evaluating information in online articles, the following strategies can help ensure that prospective franchise buyers aren’t basing important business decisions on unverifiable, misleading or inaccurate claims:

  • Look for citations of credible sources. Make sure articles cite trustworthy sources when making claims about the risks or success rates of franchise business ownership.

  • Double-check data and statistics. When reading articles that cite studies or statistics, take time to look up the primary sources from which those statistics originated to ensure numbers are accurate, percentages are statistically significant and no important information was overlooked by the article’s author.

  • Be wary of potentially misleading language. Use critical thinking skills when doing business research online. Remember that just because a franchise business or independent business has remained open for more than a few years doesn’t necessarily mean it’s successful or profitable.

By exercising sound judgment and independently verifying claims made in articles, prospective franchise buyers can learn to sort facts from fiction about the franchise industry and avoid making financial decisions based on inadequate information.

Ask the right questions

Due diligence is critical before investing in any business opportunity. As a franchise buyer, knowing the right questions to ask can help you fully understand the potential risks and advantages associated with a franchise opportunity. Rather than looking at generalized industry data when evaluating franchise offerings, try analyzing the microeconomic factors of the individual franchise system instead.

Consider asking the following questions before making a franchise investment decision:

  • Is the franchise system situated in a growing industry?

  • Are there opportunities in the market, or is it saturated?

  • Does the franchisor have good brand recognition?

  • Does the franchisor offer strong support to franchisees?

  • Is there positive validation among the franchisor’s existing franchisees?

  • Do opportunities exist to acquire a good location or good territory within the franchise system?

  • As a franchisee, will you have enough capital to sustain your franchise business and keep cash flow moving after opening?

By evaluating the microeconomic factors of individual franchise opportunities alongside your financial situation and goals as an entrepreneur, you can get a clearer picture of the potential risks and advantages associated with the offering.

Remember that every franchise opportunity is different

As an aspiring entrepreneur, it’s important to keep in mind that every business is unique. Whether you’re starting an independent business or investing in a franchise business, both investments carry risks – and the potential for success.

Prospective franchise buyers are well-advised to seek out franchisors whose values align with their own and offer the level of support needed to achieve success. In addition to ensuring that a franchise offering is in an expanding industry that offers opportunities for future growth, it’s also important to ensure you’re properly capitalized as a franchise buyer and will be able to financially sustain your business after opening.

By evaluating individual franchise offerings at the microeconomic level and making sure they align with your personal goals and financial situation, you’ll be able to find the right fit in a franchisor – and increase your odds for success as a future franchisee.

If you’re considering buying a franchise business, we can help. Contact us to learn about the services we offer for new and experienced franchise buyers.

Learn more about buying a franchise and our FDD Review services by clicking the link below or call (800) 976-4904.

Learn more

View All