Informed choices are needed when considering going it alone or buying a franchise
Tired of working for a boss and want to start your own business? Great idea, but should you start an independent business or invest in a franchise? Consider the options.
Going it alone
Starting a business from scratch can be a heady experience. You get to decide every aspect of setting up and running the business. The only constraints to consider are the expectations of the market and your bank balance. However, because you develop the business from scratch you have no way of knowing for sure how things will work out. Provided that you have access to adequate capital this may not be a problem. After all, you are confident that it will only be a matter of time until your business becomes profitable. Unfortunately, most people need loan capital to get the business off the ground. They will have to convince a banker to lend them money and that’s not easy. What’s more, the banker isn’t the only obstacle. You’ll have to convince suppliers to grant you credit and competitive trading terms. Even recruiting key staff might be difficult. The calibre of people you will want to hire will be reluctant to join a start-up where their career path will at best be uncertain. Investing in a franchise doesn’t guarantee the success of your business but it makes success more predictable. Advantages of owning a franchised network means that you can expect to: enjoy instant brand recognition; have access to group purchasing, marketing and advertising arrangements; conduct business using proven operating procedures and management systems; receive extensive initial and ongoing support and exchange ideas with franchisor representatives and fellow franchisees. This is what makes business success more predictable. Bankers are well aware of the enhanced success rate franchisees enjoy and are therefore more inclined to grant funding to franchisees of an established brand than to lone independents.
Disadvantages of investing in a franchise; strict adherence to the blueprint
Because a franchised brand’s success depends on exact duplication, the franchisor will enforce strict adherence to the proven blueprint in the widest sense of the word. Consumers expect to find an identical product offering at every outlet of the brand. Individuals who thrive on doing things their own way will not be happy as franchisees. This does not mean that franchisees are expected to be mindless followers. Forward-looking franchisors will be happy to test the merits of franchisees’ suggestions but will insist on strict adherence to established channels.
Financial considerations
Financial aspects must also be considered. Because a franchised network’s corporate identity is sacrosanct, franchisors are unlikely to permit the use of inferior materials or other shortcuts at the setting up stage. Only prime sites, quality fittings and equipment will do. This is likely to shorten the period it takes to secure a meaningful share of the target market. Most franchisors charge a one-off initial fee which pays for initial training and assistance. A management services fee (or royalty) which pays for ongoing support and a contribution to the national marketing fund are payable. Some networks insist on an additional amount on local advertising. Prospective franchisees need to ask themselves whether they are likely to receive value for money. Nothing else matters! Investing in a franchise is definitely worth considering. However, this decision should not be made without considering all the pros and cons.
‘Investing in a franchise doesn’t guarantee business success, but makes success far more predictable’