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Which Is Better: A Job or a Franchise?

When jobs are scarce, franchise ownership can seem appealing, but prospective franchisees should weigh the pros and cons.
November 15, 2010
URL: http://www.entrepreneur.com/article/217537

For many years now, one of the key questions facing prospective franchisees has been which is better for them: a job or a franchise. It is often a difficult decision because there are pros and cons to each option.

Today's market has introduced a new wrinkle to this question, as many unemployed people are finding that the only way they can find work is by accepting "underemployment." Underemployment has always occurred to some degree whenever the economy comes out of a recession. When there are numerous seekers for every job offering, employers tend to increase qualification requirements and lower compensation. It's simply a reflection of the law of supply and demand.

As soon as enough people get back to work, the number of applicants is reduced and market forces tend to correct the situation. This usually happens fairly rapidly during a recovery, because most recessions end with a significant surge of new economic activity and job creation.

But today's market seems to be quite different in this critical area. We've all been told for some time now that the recession has ended. We've also heard the term "jobless recovery" used repeatedly in the media. Without debating whether there is any such thing as a jobless recovery, there's no doubt that this recovery seems stuck in a position where underemployment rules the day. We are seeing increased economic activity, but not a significant surge in job creation. In many cases, unemployed people are accepting positions that pay considerably less than they made previously, that do not offer benefits, or that are only temporary contract positions.

In this climate, the question of whether to choose a job over a franchise changes, because the arguments, both pro and con, shift considerably.

The greatest advantage of a job has always been the perception of lower risk. The usual assumption is that a job guarantees a good income in exchange for a well-defined work effort, with little risk of losing the job unless the employee decides to quit. Most people are naturally attracted to the promise of economic safety.

But times have changed and these assumptions need to be reevaluated. If the compensation and benefits are lowered significantly, or if the continuation of the position is in doubt, the safety normally associated with choosing the job option is considerably lessened. In this market, many people are coming to believe that what they once viewed as the safe option is in fact little more than an illusion.

The advantages of a franchise, on the other hand, have always been threefold. First, it is assumed that the business will produce a significant income, though the owner will typically have to work very hard building the business before this income becomes a reality. Second, the business will create wealth through excess cash flow, and this wealth can be realized someday through the sale of the business. Third, there are significant tax advantages available to franchise owners that are not available to regular employees.

Once again, changing times mean these assumptions may no longer be so reliable. Many businesses are struggling and even failing in today's marketplace. Some franchises that were considered safe and dependable investments three years ago have now become high risk ventures.

Though the advantages of franchise ownership can still hold true in today's market, a prospective franchisee needs to be far more careful in selecting the right opportunity. The adage that an ounce of prevention is worth a pound of cure applies more than ever when it comes to investigating and choosing a franchise. Verify all your assumptions and make sure you determine exactly how the business has done during these hard times. Taking the time to do this right can pay huge dividends to a new franchisee.

For a person who uses this level of care in the investigation process, the safer and more secure course may in fact be a franchise business rather than a job. The reality of chronic underemployment in this recovery has become the game changer for many who are evaluating their plans for the future -- and encouraging more and more of them to take their own shot at the American Dream.