You are tired of working for someone else and you want to start your own business, or may be interested in Portfolio Diversification – but don’t know Is it good to start new business or buy into a franchise. When most entrepreneurs consider owning a business, they automatically think about launching their own venture. But there’s something to be said for buying into someone else’s idea and Investing In Your Own Idea.Perhaps the best place to begin is to see advantages and disadvantages of Franchise business and compared to starting a new one from scratch. Below you can find the pros and cons of franchises and startups which may provide some insight into which path you should choose.
Comparison of Franchise Models
- Name recognition. Already well-known to customers and provide a competitive edge.
- Minimal risk & Higher Success Rate – A proven business method, Franchisors have developed a Plan & system that works, created the concept, researched the market, developed the product and service offerings
- Support – Pre & Post launch Support in relation to operations, Technical, marketing, designing and location.
- Training Assistance at your location & their location & Online, also via phone support
- Hiring / Managerial Assistance provided, fewer mistakes happen at start up with exploration of general knowledge
- Greater purchasing power / Economies of scale – Cost savings on inventory items from bulk purchase
- Professional advertising
- Willing to share their trade secrets
- Don’t Require an Extensive Business Background or Education
- Franchisee makes you a partner in a larger business structure
- The whole aim of franchising is to duplicate the original
- If you ask those who work up close and personal with franchisees, they’ll tell you it’s about relationships
- Fees – Franchise Fee – one-time, nonrefundable
- Royalty Fees – a percentage of weekly or monthly gross income and continued payments for the term of franchise Agreement
- Advertising Fees required to contribute to an advertising pool
- Renewal Fees – Franchise contracts are for a limited time only
- Loss of Control – Franchisors exercise significant control over store appearance, Purchase, production & sale of services, operations & location for the sake of uniformity among all outlets.
- Fewer opportunities for initiatives – New Product development / Marketing / Management Strategy
- The preselection process – a former restaurant manager would likely be more successful if he or she acquired a fast-food restaurant rather than, perhaps, a muffler shop.
- Required purchases. Purchase certain materials from franchisor / authorized agents.
- Termination clause. The franchisor retain the right to terminate the franchise agreement on certain conditions
- Innovation and Creativity – more creative autonomy in an independent business
- Professional Freedom and Growth – Enjoy the act ‘doing your own thing’
- Presumably successful business concepts – a business idea that you believe has a lot of promise
- Lot of Money – You want to make a lot of money due to higher financial opportunities and don’t wish to share any cut
- Low Start – up cost
- No Advance Fees
- No on-going Fees
- Low Set-up Cost due to local procurement
- Ease of Menu
- No proprietary Purchases
- Lack of Complete business methodology
- Solicit the advice of professionals – Lawyers, accountant, Management Marketing, Technical & sometime Bankers.
- Vendors / suppliers Network not available
- No Trial tested and Errors Involved
- Higher Failure Rate when compared with Franchises
Though, there are several advantages to purchasing a franchise but don’t forget the fees and restrictions that come with franchise ownership. Do you mind paying Advance / on-going fees or relinquishing some control over your business to the franchisor? If you do mind, then franchising may not be for you.
Also, Franchises are not suitable for strongly entrepreneurial business types who enjoy the act of Innovation and Creativity. If you have lots of initiative and ideas and enjoy ‘doing your own thing’ rather than being told what to do, then you will likely chafe under the typical constraints of franchise agreement.
Franchises are the opportunities you choose to invest in. We use the word ‘invest’ rather than ‘buy’ because it really is an investment of your time and energy as well as money. Just like any business, with a franchise you get out what you put in – you can’t just buy the rights of franchise and then watch the money roll in.
A lot of people in the franchising field will tell you that franchises have a failure rate of about five percent, compared to the 30 to 50 percent failure rate of independent entrepreneurs.
You should be aware, a study by Dr. Timothy Bates, a professor at Wayne State University in Detroit, found that the franchises made lower profits than independent entrepreneurs. Dr. Bates’s study also found that the average capital investment of franchisees was $500K, compared to $150K-250K for independent entrepreneurs. In other words, there isn’t a whole lot of regret in setting up New Business.
Here is the Great Part, WORK SMART
Successful Business Concepts = Business idea that has a lot of promises + Financial Opportunities
(Successful)^2 = Successful Business Concepts + Franchise it
(Successful)^infinity = Successful Corporate Business + Profitable Franchisees
So what you are waiting for!
Custom Your Idea, Make it Franchise and start Franchising
We work with Entrepreneurs looking to develop New Franchise Business in Pakistan and build franchise business plans for them. Our resources are available to you one on one at every stage from idea screening to its implementation. FranchisingKey leverages a team of franchise specialists directed by global network of franchise development professionals to build and design the most complete franchise business model.
Our process is easy, fast and efficient. We help people achieving their dreams, ARE YOU NEXT?