If you lack business experience, expertise, and are not willing to start from scratch, opting for a franchise is a viable option.
If you are planning to start your own business, you must be perplexed with the problem of which is better of two:
Franchise or independent business. Both types of businesses come with their own share of advantages and disadvantages. For example, in case of the former, you would have a complete support system to allow you to take decisions in the best interest of the chain of companies.
On the other hand, it will provide you zero opportunities to remodel it according to your own will. If you are someone who likes to have his say in the business and does not like interference, then this type of business model will not work for you. In this case, you will have to opt for an independent business where you will have the control and ownership of the business.
On the same lines, if you want to restrict the amount of risk involved, effort in the background work, or time to get the business started, you will have to opt for the former. Here are a few points that will help us clearly understand the differences between the two.
|A well-established company authorizes a person to use its name, goodwill, product line, service, etc., for commercial purpose. In return, you will have to hand over certain amount of fees to the franchiser.
|It is a privately owned business by an individual which is independent of any kind of franchise.
|You have little or no control over the decision making, product lines, operations, costs, and policies.
|You design your own operations, policies, costs, and are entitled to take your business decisions.
|As you have to follow the rules laid down by a franchise, there is no independence to innovate or challenge the existing systems.
|You are free to incorporate any kind of changes that will help in the growth of business.
|You do not own this type of business; you only get a license from the company to operate.
|As a businessman, you hold total ownership of your business.
|Though the startup investment may be low, you will have to pay a regular franchise fee and royalty for using support services like advertising and branding. It is costlier than an independent venture.
|You will have to invest a lot of initial startup capital in a business and may also have to spend some amount from time to time for business expansion. Overall, it is a cheaper alternative.
|While introducing a new product or deciding the location of your outlet, the company will conduct the necessary research and only then take a calculative risk.
|You may not have access to resources or finances to conduct such research, and may end up risking a lot by making rookie mistakes.
|You are restricted by the franchiser to undertake any kind of business expansion unless initiated by him.
|You may undertake business expansion initiatives whenever you feel that the market conditions are appropriate.
|It will have an established brand recognition, and people tend to gravitate more towards a well-known brand.
|If your brand is relatively new in the market, it will take a lot of time, effort, and advertising to garner brand recognition.
|Because of the proven credibility, awareness, and publicity of the brand, a franchise may come with an existing customer base.
|It will take a lot of marketing and product differentiation on the part of the new business man to create a customer base.
|The franchiser will provide an extensive world-class product, service, and management training to you as he wants your business to prosper.
|With lack of training or experience, you are bound to make many mistakes especially during the teething stage of business.
|Processes and Systems
|It will enjoy the benefit of clearly laid out policies, procedures, and processes that will help a new entrepreneur. This may include operations, hire and fire, quality, safety, hygiene norms, etc.
|As an entrepreneur is completely new to a business, you may face initial problems as your policies and processes will not be strategically framed.
|A franchiser will provide you with valuable business advice and guidance so that you make the right choices in terms of business location, hiring people, sourcing raw materials, their quantity, packaging, etc.
|In this type, you will be practically on your own and held responsible for your decisions.
|As customers are aware of the brand’s wide presence, they will find it to be highly reliable.
|As a new business takes time to establish its credibility, people will not consider it reliable initially.
|Whether it is a well-known pizza, burger, or sub brand, people know that the same standard of quality, quantity, and taste will be maintained throughout all the franchise outlets.
|There may be a difference in the offerings of two outlets of the same business.
|Benefits of Bulk Buying
|As the company will indulge in bulk buying, you will get a better benefit of economies of scale.
|Being the sole proprietor, your capacity to buy and store raw materials may be limited.
|Owing to the State and Federal laws, the franchiser will be mandated to disclose certain business documents to you before you strike a deal. This will lead to transparency.
|If you buy an existing business, you have no option but to believe what the businessman tells you, and it’s possible that the facts may not be accurate.
|Whether it is the suppliers, vendors, or your loan agency, if you are going to be a part of a successful franchise chain, they will trust you by allowing you credit or sanctioning a loan.
|An independent business owner, on the other hand, will have to provide guarantee and prove his creditworthiness all the time.
|The marketing cost gets divided among all in the franchise for a national or international campaign, and hence, it amounts to a negligible sum for the franchisee.
|The businessman has to bear the burden of heavy marketing cost to make people aware about the products and services he is offering.
|Return on Investment
|As you are a part of a well-known brand, your business will get rolling immediately and give you a faster return on investment.
|The return on investment will come gradually.
|You will have to collaborate with the franchiser and maintain this relationship throughout the tenure.
|The only person you will be dependent on for making decisions is yourself. This means that your work will get conducted on a faster basis.
|As a franchiser has experience, he knows about the target demographics, product lines that can gain maximum profit, marketing strategies that work, network of suppliers, etc.
|As a new business owner may not have the necessary expertise, you will have to fend your way to the top.
|As you will have the protection of a bigger brand, the threat of competition will be minimized. There will also be a no-competition zone, which will discourage the opening of other franchises in a particular area.
|Being an entrepreneur, you will have to face continuous competition from established as well as emerging competitors.
Ensure that you understand which option will suit your business and decide accordingly. One cannot say that the success rate of a certain type of business fares better; it will depend on how you use it for your vantage. There is no point in opting for a franchise if you are not planning to abide by the rules of the franchiser. Also, as an independent businessman, you will be held responsible for your business decisions, so plan accordingly.