Being a nurse without an educational background on business, I often get questions from my peers on how I started venturing the world of entrepreneurship. I would then tell them that one of my close peers in the corporate world introduced to me the idea of franchising by becoming his business partner in a franchise that he wishes to own.
After some thought and a few reflections on myself, I started to visualize myself running a business that would make a difference and would provide a smile on a person’s face. To cut the long story short, becoming a co-franchisee made me realize that becoming an entrepreneur is one of my passions in life.
What exactly is a franchise? What are its advantages? Are there disadvantages as well? How will I know if owning a franchise is better for me rather than starting up my own business? These are just some of the questions that I hope I’ll be able to answer in this simple article.
What is franchising?
Franchising is a long-term cooperative relationship between two entities namely the franchisor and the franchisee. It is an agreement where the franchisor provides a licensed privilege to the franchisee to do business.
The franchisor grants the franchisee the right to use a developed concept, such as trademarks and brand names, production, service and marketing methods as well as the entire business operation model in exchange of a fee. The franchisee then provides the time, capital, and the desire to utilize the brand and services provided by the franchisor to build a successful business.
What are the advantages of owning a franchise?
Established Brand and Customers.
I believe that the biggest advantage of a franchise is the strength of the brand and loyalty of its customers.
There’s a saying in franchising: “You’re in business for yourself, but not by yourself” because you have a network of support.
Business and Marketing Support.
Buying a franchise is one of the easiest ways of transitioning from the corporate world to entrepreneurship. Franchisors can provide support to franchisees. Basically, franchisees do not need to worry much on how to run and market their business.
Franchisors often have established relationships with suppliers for all the materials franchisees need.
Franchisors often offer management and technical training to the franchisee.
Ongoing Research and Development, New Products.
Franchisees can stick to improving their operations and let the franchisor spend the time and money developing new products.
The Success of One is the Success of All.
Basically, if the franchisor is successful, there is a higher chance that the franchisee will become successful as well. This goes the other way as well.
For all of these reasons, starting a franchise of an established brand often has less risk than starting a business from nothing as there Is already an established system to follow.
What are the disadvantages of owning a franchise?
Initial Cash out (Franchise Fee and Start-up Costs).
This can be a major disadvantage of starting a franchise. You would need to have a higher capital to start a franchise rather than starting your own business.
For most franchises (although not all), as long as you are a franchisee, you will have to pay some percentage of the monthly gross back to the franchisor, reducing your profit potential.
When we first bought a franchise, there was no royalty fee. However, we were asked to pay a fixed amount monthly for the franchisor to be able to continuously provide marketing support. Franchisees must pay these fees, as it is stated in the contracts upon buying a franchise.
Franchise contracts usually have very explicit standards, allowing little or no alterations or additions to the brand, stifling any creativity on the part of the franchisee. Thus, as a franchisee you need to follow the system.
Locked into Operation by Contract.
Upon signing a franchise contract, the number of years of running the franchise may vary from months to years. Should you find yourself with the wrong franchise, you may be a pain in the neck for franchisee.
The failure of one is the failure of all.
Just as the success of a franchisor becomes the success of a franchisee, the failure of a franchisor becomes the failure of a franchisee as well. Basically, the problems that the franchisor experiences would also have an impact your business as a franchisee.
You may think that once you start a franchise, success is surely to come. I realized this the hard way. Months after the initial launch of our franchise, the sales started to decline. I realized that though you have a franchisor to support you, you should always remember that you are still running your “own” business. It is still up to you if you will meet your goals and expectations.
There’s always risk in starting any new business regardless if it is a new business or a franchise.
Should you buy a franchise or start a business?
If you wish to know if franchising is good for you or you’re better off starting a business, simply ask this 4 questions.
1) How much control do you want to have in your business?
Franchisees enjoy the perks of being a boss/owner. However, always remember that there is always an extent to your control. You would always need to ask approval from the franchisor before you can modify the product or promote a new marketing campaign. If you want 100% control on your business, then I believe starting from scratch is better for you.
2) Are you willing to pay fees on a regular basis?
As I mentioned above, in owning a franchise, you would need a higher capital. Aside from this, there would be monthly fees such as royalties and, marketing fees. Consider as well that there are other additional fees that a franchisor may require you to pay aside from from what is outside the contract.
3) How established is the brand that you wish to franchise?
There is a higher income potential for franchisiees who bought newly franchised brand. Basically, the franchise fee is less expensive compared to a more established brand. However, remember that this would entail a higher risk. I believe that if you have a budget that can afford to purchase a well-established brand such as Jollibee, then go franchise. On the other hand, if you have a huge capital but the brand is just new and unknown to your local market, I suggest starting a new business is better. It’ll be less expensive thus you’ll have more back-up funds. You’ll be more flexible and I believe that the rate of success for new business and a new franchised brand is close to each other.
4) How much risk, time and effort are you willing to spend on your business.
It all depends on you. If you believe that you have a high risk tolerance, are willing to spend more time and effort in running the business, then you may be better off starting your own business. If not, I believe buying a franchise is better for you.
Well that’s it for now. be sure to subscribe to Skydive To Success via email and receive the latest articles on personal finance, entrepreneurship and success. 🙂
“Before you make a final decision, think about what you’re doing and ask yourself, “Is it really worth it?”
I hope this article taught you something about how to achieve success.
Please don’t forget to share if you like it!
I Struggle, I Win!