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Buying a small business in Canada is a big commitment. One of the initial decisions you need to make will be which type of business you want to acquire. More specifically, you'll have to decide if you want to buy a franchise or an independent business. Of course, you may be able to succeed with either type, but before you decide, consider three major differences between these two business types.
Model of ownership
From the ownership perspective, a typical small business and a franchise are quite different. Franchisees can't usually change services or products based on their desires or the market conditions, unlike a small business. Generally, the franchisor makes the decisions about these variables.
However, an independent business owner doesn't have the security that comes from knowing that services, products and other ownership decisions have already been tested and primed for the marketplace. While franchisees do sacrifice decision-making independence in some areas, they also gain a stability and security that comes from being part of larger, established organizations.
The investment price tag
Usually, an independent business owner has steeper investment and operational costs, but they do have more control over investment choices and timing. For example, an independent owner may delay or downsize a remodeling plan when cash is tight.
Franchisees, on the other hand, tend to have lower initial investment costs but have to meet the obligations their franchisor has set. For example, a franchisee may have to weather the cost of a remodel the franchisor has specified even during tough times.
Level of brand recognition
Generally, franchisees have a significant advantage over independent owners in the area of brand recognition. Unless an independent business has really cultivated its brand, it's very unlikely the business will have the same level of brand recognition that often comes with franchises.
Of course, it's important to note that brand recognition can have its dark side. If the brand or another franchisee in the system has done something that has brought bad publicity, all the franchisees in the business suffer. This is a risk that doesn't usually apply to independent business buyers.
When you are looking to buy a business in Canada, you will have to evaluate each potential choice based on its merits. Independent businesses and franchises fail every day, but at the same time, people have success with both models. Whether you buy a franchise or independent business, it's important to do your due diligence before you invest.