Have you ever thought about starting a new business? When visiting a local eatery, small business, retail stores like Starbucks or McDonalds, you may have wondered what it was like to own your own business. When successful companies take off, they often debate whether or not they want to grow franchisees and investors. Franchises and corporations are two business models to consider.
There is a good amount of risk and reward involved in growing your business, and it is essential to understand the necessary steps in doing so. Customers might not even notice the difference between the two because they have similar products and services. The management styles behind a corporation and a franchise are what differentiates the two business models.
What is a Franchise?
There are many franchise businesses you may notice in your day-to-day life. If you want to learn more about becoming an entrepreneur, it is necessary to know what a franchise or parent company is.
A franchise means another company permits you to their name, logo, business, and overall brand. If you decide to open a franchise, you will most likely pay a fee to the company to build on their established entity.
Some famous franchises include McDonalds, Subway, Burger King, 7-Eleven, Dominos, Wendys, Taco Bell, etc. You enter a franchise agreement and relationship with your company’s other franchisees and business owners and have the same business name when opening a new franchise. To do this, you will have to pay a fee to access the franchise trade name.
Typically as a franchise owner, you will operate under the franchiser’s guidance and must run your business seemingly identical to the way the other franchises are. Think of a Mcdonald’s, where the daily operations are similar. A benefit is that the franchisor does most of the marketing for you. Still, you should also be aware that owning a profitable location is not solely guaranteed by marketing. It takes management skills and training to run a successful franchise. Luckily the franchisor often provides on-the-job and classroom training to new franchisees. You should always research your franchise beforehand and read your franchise disclosure document (FDD) carefully. Any training the franchisor offers should be detailed on the franchise website and in the FDD report.
What is a Corporation?
A corporation is a structure in which one or more stockholders control the ownership. Incorporating is the best way to protect their assets, which is a large reason why people choose to incorporate in the first place. In a corporate business structure, you are expected to save money in taxes, have more flexibility with your business, and raise your capital more efficiently.
On the flip side, by opening a franchise, you create a new company using the business structure, including a corporation, partnership, or limited liability company. You also have to pay a franchise fee. The corporation is in a separate legal entity; they are owned by shareholders and independent of their companies. Some famous examples of corporate-owned stores are Google, GM Motors, General Electric, JP Morgan, Microsoft, Apple, etc.
What are the Differences Between a Franchise and Corporation?
The main difference between a franchise and a corporation is that a third party owns the franchise itself. Shareholders own a corporation. Operations of both liability and the working model of each establishment are differentiated when running your business. There are a good amount of notable differences between franchises and corporations.
Individuals own a franchise; however, a corporation is owned by shareholders.
The franchise store itself controls a franchise; however, a corporation is controlled by the board of directors.
In a franchise, you are liable for the actions of your business. Shareholders own corporations, so they have limited liability to their business. Franchises and corporations also operate differently. When you own a franchise, you are expected to pay a royalty to the franchise or use the brand name of success while corporations are engaged in the distribution and acquisition of shares and stocks.
A franchise gets royalty payments for giving rights to the usage of trademarks. However, cooperation is dependent on the sale and purchase of shares and investments.
Pros and Cons of Corporations vs. Franchises
When making success in your business growth, you may question whether it is better to grow or franchise your company. Many different factors come into play when deciding if starting a franchise or a corporate owner’s growth is beneficial. One benefit of franchising is bringing your business to various locations across the country and globe. Another benefit to franchising is a majority of the duties have been left to the franchises and not the franchisees. You can also earn money through royalties and grow your business at a good pace. Some benefits to a corporation are that you’re an owner and control every aspect of the business as a whole. You also obtain all profits when doing so. You also will spend less time developing materials for your business.
When entering the business world, there will always be risks and chances you take to become a successful business, so it is essential to do intensive research on the type of business structure you would like to obtain. The bottom line is, franchising and corporations are two of the many different types of business structures you should consider.