Many people in Chicago want to become business owners. While some choose to start their own business from the ground up, others choose to purchase either an already existing business or a franchise. Business formation and planning take careful thought, so it can pay to understand how purchasing an already existing business differs from franchising, so you can determine if these options are right for you.
Purchasing an already existing business in Illinois versus franchising ultimately boils down to the extent of control the owner has over the enterprise. Purchasing an already existing business gives the owner more control over the enterprise than franchising does, but it offers less guidance over how to run the business than franchising does. Existing businesses can be attractive because they are already up and running, with employees and an established customer base. Individuals who purchase an already existing business own the business entirely, but they are responsible for directing all business operations on their own.
A franchise, on the other hand, offers business owners more guidance on the running of the business, but the business owner does not have as much control over the business as they would if they had purchased an already existing business. Franchises are businesses where a person known as the franchisee purchases the right from the business owner (franchisor) to use the business’s name, logo and business model. In product/trade name franchising, the franchisor manufactures or supplies the products to the franchisee, who in turn will sell the products. In business format franchising, the franchisor provides the franchisee with certain services including obtaining funding, providing the franchisee with a marketing plan, supplying the products to be sold, training employees and deciding where to open the franchise. Ultimately, the franchisee must abide by the franchisor’s rules on how to operate the business.
Purchasing an already existing business and franchising each have their own advantages and disadvantages. Potential business owners will want to consider how much control they want over their business and how much guidance they want in running it. These decisions can be complicated, and each have legal significance with regards to executing contracts, complying with applicable regulations and licensing. Therefore, it can help to discuss the matter with an attorney, who can explain more about the legal difference between these transactions.