To understand the advantages and disadvantages of buying a franchise business, you need to have a basis for comparison. There are several other ways to realize your dreams of business ownership: You can buy a business opportunity (where you purchase a prepackaged business, but run it as you choose) or you can create an entirely new business from the ground up.

While there are definite advantages to owning a franchise business over these other business-ownership options, franchising is not the perfect path for everyone. To decide if it is right for you, consider your business background, your motivations, and your qualifications for these various types of business ownership.

Let's consider three scenarios:

1. Scenario One

You have been laid off from a 20-year career in banking. Even before the layoff, you realized you had reached the ceiling on your salary and the possibilities for advancement in your career had diminished. Your company has given you a cash settlement and you are keen to take charge of your life, become your own boss, and learn some new skills along the way. You want a good income and are willing to put in whatever hours necessary to jump-start your new career but your overall goal is to eventually work reasonable hours and have more time for yourself and your family.

If your history is similar, you are probably an excellent candidate for franchise ownership. This path will allow you to benefit from a proven system of operations and a training program that will quickly get you up and running. As you have no previous business-ownership experience, the ongoing support you will receive from a franchisor will be vital to your success. Many franchise opportunities offer a turnkey package that will include almost everything you need to start your business. In addition, most franchisors require no previous experience in their industry so you can be open to a variety of types of businesses and won’t need to stick to the one industry you know.

Being part of a franchise system provides other benefits. Franchisees can take advantage of lower-cost materials due to group buying power. They also learn from each other and usually form a peer support system. Because you won’t be occupied with every minute detail of owning a business as you begin down the path of franchising, you will be able to concentrate on growing your business.

One disadvantage to franchise ownership is that you must follow a franchisor's rules. In other words, you are in charge as long as you follow and adhere to all of the elements of the franchise system. This is necessary so that the franchisor can offer consistency across the brand—and let’s face it, they’ve done the research and tested the procedures, so their way is usually the best way. This is also a benefit to the consumer who can expect comparable quality products or services no matter which franchisee he patronizes, anywhere across the country or around the world.

The other perceived disadvantage to franchising is that a franchisee must pay royalties and sometimes a marketing fee to the franchisor. Royalty payments are compensation for everything the franchisor provides, including access to the brand, the operating system, ongoing support, research and development, and related items. The franchisor uses the marketing fee to provide national advertising to build the brand and drive market penetration at a greater level than a franchisee could do on his or her own. Also, national marketing funds enable franchisees to benefit from professionally produced marketing materials and to realize efficiencies from commingled funds.

2. Scenario Two

You currently work as a business consultant but you're tired of the 9-to-5 grind and want a change. You've saved a good deal of money over the years and have been thinking of striking out on your own. As a truly  entrepreneurial individual, you are brimming with ideas for new products or businesses and love to "tinker" with things until they are just as you want them. One thing you've disliked over your career is answering to others; you are strongly attracted to the idea of being your own boss. You have the drive to follow through on your plans and have a background in a variety of disciplines, including sales, marketing, accounting and management, so you are not looking for outside support. Since you have plenty of money to spend on researching and developing your product or service, a predictable timeframe for break-even isn't a concern.

If you are like this type of person, one who likes blazing his own trails, franchise ownership is not for you. Instead, you will be more comfortable setting up your own business using your own ideas. This is the most risky way to become your own boss, because you will not have the proven operations system, nationwide brand and marketing, and the ongoing support of a franchise company. You may also have more difficulty obtaining business loans, if needed, and the time from inception to when you start turning a profit will be hard to predict. On the plus side, you will owe no royalties and can run your business just as you please.

Historically, this is the model least likely to succeed. So it is recommended only for truly exceptional individuals who have the desire and stamina to start their own business based on their own unique idea or approach.

3. Scenario Three

Two years ago, you were "downsized" from your position as a manager. Now you have a job in sales but a proposed merger may eliminate your department. You're tired of being at the mercy of corporate America and want control of your financial future. A varied work history has given you some great skills which you wish to put to use by running your own business. You are not concerned about the type of business you buy but want to have freedom to run it your way. You would be OK with a certain degree of risk but also recognize the advantages of an established system of operations. You would be comfortable that marketing assistance and training may be under developed or nonexistent. Although you don’t have a lot of cash to invest, your spouse works so you will have a consistent income for the time it takes your business to begin making money.

If you're the type of person who will never stop and ask directions, a business opportunity may be the right type of business for you. This is a business you buy outright and have the freedom to run your own way. The benefit of business opportunities is that they generally provide you with a successful business model and possibly some training and marketing assistance. The initial investment is usually lower than for a franchise and there are no ongoing royalty payments.

A downside to business opportunities is that the seller isn’t invested in your success because he makes all of his money up-front. Therefore, you won't have extensive ongoing training, assistance, a national marketing program, research and development, etc. The risk factor is probably greater than for owning a franchise but could be less than starting your own business.

For many people, franchising is a better way

For the majority of people, franchising  has proven to be the most practicable way to become a business owner. Overall, it offers the lowest risks and the highest level of support. Because a franchisor doesn't succeed until the franchisees do, you'll find a team of dedicated professionals willing and able to help you every step of the way, from site selection to employee hiring to grand opening. They will keep in touch with you from the very beginning to years down the road and have Web sites, toll-free numbers, and an enthusiastic staff to make sure all your questions are answered quickly and completely.

The cost of this continued support is usually in the form of royalty payments based on earnings but most franchisees feel the benefits are worth the expense. Research and development is possible because of feedback from those in the field and this cooperative involvement is a hallmark of a well-run franchise business.

The final benefit of franchising is that you buy a package—product or service, brand name and trademarks, marketing and advertising, operations manuals, and proven systems—along with thorough training in every aspect of the business.  You can totally change careers without years of schooling or apprenticeship or research. One day you can have a job as accountant or engineer and a few months later have a career as the successful owner of a business, which may be an auto detailer or a pet spa or a home improvement franchise.

There’s no question that franchising in America is incredibly successful. A recent U.S. Department of Commerce study on franchising found that a new franchise business is opened every 8 minutes of every business day. In addition, after seven years, 91 percent of new franchises were still in business, as compared to only 20 percent of individual new startup businesses.

For most people who are considering business ownership, franchising will provide the least risky means to obtain the financial and lifestyle goals you desire with the best chance of success.

Business Ownership Comparisons	Franchise	Business Opportunity	Your Own Business
Potential Risk Factor	Lower	Moderate	Higher
Cost	Moderate to high	Usually moderate	Whatever you want to spend
Training	Yes	Possibly	None
Proven operating system	Yes	Yes	No
Ongoing support	Yes	No	No
Royalty payments	Yes	No	No
Up-front fee	Yes	Yes	No
Brand-name recognition	Yes	Maybe	No
National marketing fund	Yes	No	No
Marketing help	Yes	Maybe	No
Group buying power	Yes	Maybe	No
FDD provided	Yes	No	No