When deciding between purchasing a franchise or opening an independent restaurant, know that the latter option gives you much more control and can come with lower costs and risks. However, you do give up the support system that large chains provide to franchisees, and you have full responsibility.
When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. Running an independent restaurant has its perks: You can change your menu at any time, use whatever slogans and logos you want and avoid some of the costs and risks of franchise ownership. At the same time, though, you'll need to be patient, know where to find help and be able to handle the challenges of having full responsibility of your restaurant.
TL;DR (Too Long; Didn't Read)
Advantages of an independent restaurant include potentially lower startup costs, full control over operations and avoidance of franchise risks. Disadvantages include full accountability, more time needed to become profitable and resale difficulties.
Advantage: Full Control Over Operations
The biggest advantage of an independent business or restaurant is that you get full reign over how you run it. When you run a franchise, the franchisor is the one who tells you what food you can serve, what your location must look like and what procedures you must follow in your daily operations.
Being independent allows you to develop your own brand, menus and dining experience for your customers. If you decide you want to try something new, like adding outdoor dining or offering new desserts, you don't have to worry about getting approval like you would with a franchise.
Advantage: Lower Startup Costs
You may also be able to start an independent restaurant with less cash than you would with a franchise. With an independent restaurant, you don't have to worry about coming up with a large franchise fee or prove a large net worth like many chain restaurants require for franchisees.
For example, Franchise Direct reports that starting a KFC location can run anywhere from $1.4 to $2.7 million in initial investment costs, while Domino's looks for a net worth of $250,000.
It is true that a franchise can come with some cost benefits, like allowing you to get group discounts for startup supplies and saving money on initial advertising and lease costs. However, with an independent restaurant, you have the freedom to shop around for an affordable restaurant location and then compare the prices of suppliers, services and equipment to find an arrangement that fits your budget.
Advantage: Fewer Potential Risks
Running an independent restaurant can also help you avoid some of the personal and legal risks of running a franchise. Since you don't have a franchisor to whom you need to answer, you only have to worry about yourself and your own employees, and this can reduce conflict from disagreements over operations. At the same time, you avoid the risk that a franchising company might go bankrupt or find itself in legal trouble, both of which could eventually force your business to close.
Disadvantage: Full Responsibility
While having full control over your restaurant is an advantage in terms of flexibility and creativity, it also comes with the disadvantage of full responsibility. When you're running a franchise, you usually have a lot of support from the chain in terms of training, mentorship and regular guidance. Having an independent restaurant means you're on your own and will have to seek your own resources for help when you need it, such as your local chamber of commerce or fellow restaurant owners.
If you're inexperienced in running or managing a restaurant, having less direction can present challenges when things go wrong, whether you struggle to market yourself or have distribution issues.
Disadvantage: Time to Gain Business
Another disadvantage is that it can take longer for your independent restaurant to gain customers and have a good profit. When you're running a franchise, you get the benefit of having the chain's reputation and brand awareness, but when you're opening an independent restaurant, you have to put time, money and effort into establishing yourself in the community and marketing yourself. You'll need more time to see a return on your investment than you would if you run a franchise.
Disadvantage: Potential Resale Difficulties
With an independent restaurant, you might run into some hurdles if you want to sell. With a franchise, it can be easier to find potential buyers since the chain's brand is well known and has a proven value.
While you can sell an independent restaurant, you'll need to have put in the effort to make a reputation for yourself and show potential buyers that the purchase would be profitable for them. In some cases, you might end up selling for a much lower price than desired if you do have trouble finding someone to buy the restaurant.
- Guidant Financial: Pros and Cons: Independent Small Businesses and Franchises
- Franchising.com: Weighing the Pros and Cons of Franchising vs. Traditional Business
- WebstaurantStore: Independent Ownership vs. Restaurant Franchising
- Forbes: Why Independent Restaurants Are Closing
- Franchise Direct: How Much Does It Cost to Open a Fast Food Franchise in the United States?