Franchises are owned by franchisees and spread out across different locations. Growth is often faster and more cost-effective with franchises than corporate-owned businesses. Let’s take a look at the franchise vs. company owned dilemma.
Franchise vs. Corporation: Similarities
A franchise may qualify as a small business vs a corporate owned store. The franchise owner pays the parent company a direct investment along with ongoing royalties to operate under the brand name. Owners benefit from the parent company’s reputation, track record, and advertising credentials, as well as ongoing training to help them grow while still standing on their own as independent operators.
Franchises exist in nearly every realm of the business world: from restaurants to salons to home improvement concepts and beyond. Brands that operate as franchises give ambitious entrepreneurs and creative thinkers the opportunity to invest in their own businesses and build with the support of a proven business model.
Franchises and corporations may be the same genre of businesses but with different growth strategies. A franchise that’s incorporated enjoys the same legal protections as any incorporated business. A franchise is owned and operated by an entity but operates under license from the parent company. A corporation runs all of its business outlets.
Both types of businesses seek continual growth but utilize different means. Corporations achieve growth through generating or acquiring capital and having successful sales, marketing, and product development strategies. A franchise seeks growth through partners that purchase franchise locations and utilize a great deal of their own input to make the business a success. The parent company profits by collecting franchise fees and expanding their brand through multiple locations with more franchisees.
Franchise vs. Corporation: Differences
Franchising follows a formula that allows the franchisor to expand a business through the distribution of goods and services via a licensing relationship agreement. Franchising benefits both the franchisor and franchisee in a symbiotic way. As a franchise continues to grow in recognition and popularity, the business name holds more weight with multiple locations.
A franchisor is expected to handle all the legal formalities of the business and implement a successful brand layout that attracts franchisees and ensures they get the most out of their investments. Franchisees can often collaborate on any changes that will benefit the brand and its future. A franchise business is also able to exist in many forms. A corporation, partnership, or other legal business entities are acceptable as long as the brand maintains its trademarks. Great franchisors have the benefit of sharing learned lessons with their franchisees and building on that strength.
A corporation is a legal entity that is separate from its owners; it is governed and owned by a group of people who may also be stockholders and shareholders with a board of directors that oversees the activities of the entire organization. Corporations have full control over the business and its direction, and people overseeing daily operations at individual locations have no voice in the matter. Corporations have the power to change products and services offered at any given time.
THE NUTS AND BOLTS OF FRANCHISE VS. CORPORATION
A major benefit for non-franchised businesses is expansion control. You have a lot more control over your operations if you own them. You also have more (or final) say over the location of new business and how it is marketed to the public. If control is important to you as a prospective business owner, it is typically better to keep company expansion in your hands. Franchisees have rights over managing some of the aspects of the franchise outlets they own but generally have little say in business operation methods beyond their locations.
Opening a franchise vs corporate owned growth is usually a faster way for a small business to expand. Generally speaking, small business owners don’t have the capital to assertively add new locations quickly. But by allowing other enthusiastic entrepreneurs to invest in a brand, more outposts can be added much faster. Every additional unit can directly benefit from the shared word-of-mouth amongst customers as the company expands.
Corporate growth typically happens at a slower rate. The parent company has to leverage funds to cover opening and staffing the new business at every location. As such, the corporation is responsible for all profit and loss, as well as all business decisions and quality control.
Operational Risks & Liability
With a franchise, controls or limits are placed on franchisees in addition to the benefits of their signing contracts. Most franchisees agree to adhere to a set of rules and operational procedures as laid out by the franchisor. However, if operated poorly, a franchised location could potentially generate bad press for the entire brand. On the other hand, shareholders within a corporation have limited liability, which means their shares or assets will not be affected directly in the event of a legal dispute.
Franchising enables a brand to spread the investment risk of expansion and hold onto capital. Typically, franchisors receive upfront and ongoing fees from franchisees. This essentially means that there is continual revenue stream without ongoing investment risk. Many franchisors also mandate advertising fees, with each franchisee contributing a set amount toward the ongoing marketing efforts made on their behalf as well as toward the parent company.
Pros & Cons of Franchise vs. Company-Owned
With franchising, you are purchasing a proven business model with a steadfast business plan. You will be responsible for your day-to-day operations, purchasing (generally with suggested or fixed vendors), and managing your employees. Through your franchisee fee and initial investment, you receive the right to use a known brand name, along with the training and ongoing support needed to sustain its integrity. Beyond the ongoing franchising fees, the profit you make is your own.
Company-owned stores come with more set and specific rules, but that can be a pro for some. Hiring and firing, profit and loss, and supplier contracts all rest in the hands of the company. In a company store, the corporation controls and oversees all operations, even contracts for supplies. The corporation handles the management decisions, including hiring and firing of employees.
Choosing the Right Franchise
Home Franchise Concepts is the parent company of 8 award-winning franchise brands. HFC makes it easy for motivated entrepreneurs to explore our nationally renowned service franchise opportunities, no matter your background or goals. All our brands share a commitment to a world-class franchise model, flexibility, and endless potential. Now is the time to capitalize on HFC’s 29+ years of franchising experience and seize your dreams of owning your own business that is suited to your dreams.
Home Franchise Concepts is a subsidiary of JM Family Enterprises, a privately owned company with assets greater than $17.5 billion. JM Family is ranked No. 17 on Forbes’ list of America’s Largest Private Companies and has been ranking as one of the 100 Best Companies to Work For® by FORTUNE® for 23 consecutive years. Our franchise brands include AdvantaClean, Budget Blinds, Concrete Craft, Tailored Closet, Kitchen Tune-Up, Bath Tune-Up, and our latest brands, Two Maids & A Mop, and Aussie Pet Mobile.
If you’d like to learn more about our award-winning family of franchise brands, just submit your information through our no-obligation form, and one of our HFC Franchise Consultants will be in touch.