It’s a common misconception about franchising that, because there are so many rules, policies, and territory restrictions handed down by the franchisor, you’re not self-employed if you buy into a franchise system.
According to Merriam-Webster, the definition of the word self-employed is “earning income directly from one’s own business, trade, or profession rather than as a specified salary or wages from an employer.” Based on this definition, franchisees and small business owners share something very similar and several important differences. They’re similar in that there is no guaranteed income. Differences include costs of start-up, a built in support system, income potential, and territory restrictions. Lets take a closer look.
Regardless of whether it’s a start-up created by you or a franchisee you buy into, there is no guaranteed income/salary. No franchisor is waiting to write you a bi-weekly check for your services. You’ll have to produce that yourself. In a small business you start, the same is true. You’ll create an income because you have the courage to stake your claim and build an income where there is nothing. Either way, according to the dictionary, earning your own income is the primary characteristic of being “self-employed.”
There are also several differences that you may find as important considerations for starting your own business versus buying into a franchise. First, the costs associated with a franchise are different. As a franchisee, you’ll be required to pay a franchise fee. You’ll be required to pay a monthly royalty fee and possibly other expenses directly related to operating your franchise location(s). Not so with starting your own business.
A second difference is, in a well-run franchise, you’ll get support. You’ll get a proven system to use so you can greatly reduce mistakes. The franchisor has learned many of the lessons you’ll benefit from. Reducing the number of mistakes and having a track to run on may greatly reduce the time it takes to make a profit.
Another difference is income potential. Whether stated or not, franchises pay careful attention to how much each franchise location generates in revenue. Most franchises are designed to make revenue within a range and within a defined territory. This allows a strategically determined number of franchisees to exist within a metropolitan area. While it’s conceivable for each franchise location to experience “unlimited income potential,” it’s not as realistic as a small business owner who is free to grow revenue by opening as many locations as desired or by creating a one-of-a-kind business not available anywhere else.
Speaking of locations, territory control is another important difference between small business start-ups and franchisees. Franchisees will sign agreements that define how many franchise locations they can open and where each one can be. Small business start-ups are not limited by these restrictions.
There you have it. While there are differences, the misconception that you’re not self-employed if you’re a franchisee, at least based on the definition of the term, is incorrect. Clearly, creating income is where the rubber meets the road. After that, you’ll have to determine if the differences are compelling enough for you to choose small business start-up over franchising. Either way, to me anyway, you’ll be self-employed.
If you’re more likely to think about franchising as a way to be “self-employed” you may want to check out FYIndex.com, the world’s largest franchise ranking. It’s one thing to decide franchising is right for you. It’s completely another thing to pick the right one. This is where sites like FYIndex.com can help.
Finally, whether you pursue self-employment through franchising or going it alone, the independence and lifestyle flexibility make it a fantastic way to live your life.