Question

You have decided to go into business for yourself. Between your personal savings and what the bank will lend you, there will be enough money to either start your own business from scratch or purchase a franchise. Which of these two options would be best for you? Please explain at least three (3) big advantages or at least three (3) big disadvantages of buying a franchise.

Answer 1

The choice of franchise versus own business depends on the risk appetite of the individual investor/entrepeneur. The risk associated with starting a own business lies in conceptualizing the business model/idea, implementing the same, hiring the right talent who would contribute for growing the business is huge. If a entrepreneur feels that his/her risk appetite is less, Then the best option is to go for purchasing a franchise.

Advantages of buying a Franchise

1. Brand Recognition:Franchise's brand is already well known among customers. So the footfall is expected to be more right from Day 1 after start of operations and the customer base is already built. So we need not do brand building exercises and invest for the same.

2. Higher Success Rate: Franchises inherent proven method of operations from the Franchiser. All franchisees operate under a umbrella of guidelines laid out by the Franchiser. All the entrepreneur need to worry about is the day to day operations. All the training related to product lines, marketing techniques, promotions/offers, are taken by the Franchiser. In addition, Franchiser provides ongoing support throughout the day to day operations, till the time the contract is in place.

3. Business experience required could be minimal: The entrepreneur can be new to the particular business, and with less experience can run the business with the continued support and framework of the franchiser. There will be proven management and work practices that can be adopted easily rather than developing from scratch. Further, the entrepreneur can gain advantage from his/her access to large business networks and learning comes over the period of time.

Disadvantages of buying a Franchise

1. High Fees: Good things come with better price. The entrepreneur need to pay an upfront fees for buying the franchise, which is usually high. In addition to that, there is a fixed costs every month or a year that entrepreneur need to pay to franchiser for using the brand names etc.

2. No Professional freedom: In own business, entrepreneur can enjoy the professional freedom to diversify the business either geographically or product line wise. They can have full operation control. They can have flexible working hours/location and not answerable to anyone. But in franchisee, the entrepreneur needs to constantly report their revenues etc. to the franchiser and may share a % of the same to franchiser as a royalty.

3. Less innovation and creativity: An entreprenuer (if buying franchise) has to follow certain rules/guidelines and cannot decide on the shop setup, color of the interiors, or even the uniform of the employees. There is no to limited scope in terms of bringing in own ideas to improve or diversify the business. There is always limitation of growth in a franchisee mode.