Final answer:
The start-up costs for a sole proprietorship are generally lower than those for a franchise, which requires a franchise fee and recurring royalty payments. A sole proprietorship allows the owner to keep all profits but comes with unlimited liability, while a franchise offers some support at a higher initial cost.
Step-by-step explanation:
When comparing the typical start-up costs of a sole proprietorship to those of a business franchise, we observe significant differences. Starting a sole proprietorship generally involves fewer initial costs, as it can be established by an individual with a business idea who is willing to take on all the responsibilities. This type of ownership is characterized by ease of management and no need for special taxes beyond personal income taxation. Sole proprietors can keep all profits but must also handle the full extent of any losses, debts, or liabilities, meaning they have unlimited liability.
In contrast, a franchise involves purchasing rights from a franchisor, requiring a sizeable upfront franchise fee and ongoing royalty fees. The franchise comes with training and supply chain support, but it also imposes a higher financial entry barrier compared to a sole proprietorship.
Concerning liability, a sole proprietor has the highest stakes, as personal assets are at risk in case of business failure. Franchisees also bear significant risk, but the structure may offer better separation between business and personal assets depending on the agreement. However, the resources provided by the franchisor can help mitigate some of the operational risks involved in starting a business. Nonetheless, the costs associated with a franchise are typically higher, due to the initial and ongoing fees paid to the franchisor for the trademark, proven business model, and ongoing support.