Question

DQ #2 - Franchises

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 best choice will be to start a business by purchasing a franchise. The reason behind choosing the franchise business is that the rate of success for the franchise is very high in comparison to a startup business. The reason behind the great success of a franchise business is the involvement of a well-established brand. It is also a proven fact that the brand selling franchise has already control over a particular size of the market. Thus, to start up a business franchise is always a better choice than a startup business using its own money or borrowing money from a bank or a mixture of both sources of finance.

Advantages of Franchise:

1. Low capital requirement

• One of the primary hindrances in starting a new business is lack of capital. Franchising is the best alternative in the current market. It allows the expansion of business at a little cost without any cost of debt or equity.

2. Higher growth rate

• The company issuing a franchise is already a well-established company in the market. It has a reasonable customer base growth rate is much higher in comparison to a new startup.

3. Low risk

• The company already has a well-established and proven working structure. The risk of working is very low. Unless a person chose to work differently or change the working structure, the risk of working remains very low.

4. No Prior experience required to run a franchise business.

Disadvantages of Franchise:

1. Restrictions on business

• Franchise business there comes to a lot of restrictions imposed in the franchise agreement. These restrictions can restrict a person to make changes in the business according to the market conditions.

2. Profit-sharing

• Profits earned by the business are shared by the franchisor.

3. Inflexible nature of business