Business Startup – Pros and Cons of Buying a Franchise
Many people who want to go into a business consider whether buying a business franchise is the right choice for them. However, just like any other business startup, a franchise business has its advantages and disadvantages and you need to carefully weigh all the pros and cons before you take such an important decision about your life and profession and step into a franchise business.
Though franchising is a comparatively new business concept, it enjoys a greater success rate than conventional independent businesses. In fact, for first-time business owners it is the safest option to choose. It offers instant brand awareness as you are associated with a recognized brand and your franchisor will offer you organizational and technical support, training, and a network of other franchisees and associations committed to supporting franchisees. Moreover, your return on investment is much faster.
There are undeniably distinct advantages of buying a franchise business opportunity, and yet, there are several disadvantages too. Before you consider a franchise business ask yourself some simple questions to see if you are really suited for a franchisee business.
Questions You Need to Ask Yourself
Can you adhere to set rules and regulations?
Franchising is all about following set rules and procedures which are well defined by your franchisor. If you are a highly creative person, a franchise environment will stifle you as there will be no room for your creativity and ideas. Franchises are built on the concept that the consumer must have a uniform experience no matter which location they go to. Therefore, the product offerings, policies, and operations and the overall consumer experience need to be predefined and uniform across all franchisee outlets.
Are you okay with hard work?
Franchising is not a get-rich-quick scheme. For most franchisees, monetary success follows only after years of patience and hard work. To earn a lot of money you will have to become a multi-unit owner, and that will take you a considerable amount of time.
Are you a good manager?
How compatible are you, with the idea of managing a labour force which will largely comprise of blue-collar workers? Do you have the background, training, or temperament for it?
If your answer to all the above questions is yes, then maybe a franchise opportunity is the right choice for you. You should now consider all the advantages and disadvantages of a franchise business before you make your decision about going into a franchisee business.
Benefits of Buying a Franchise
There are several benefits of getting into a franchisee business.
Proven system: A franchise system is an established and tested system for operating the business and making profits. Therefore, the probability for success is much higher due to the established support system.
Support: Small business owners usually have very little support or business acumen for managing a business. Buying a franchise offers the benefit that entrepreneurs do not have to start from a scratch and that they can take advantage of the available resources and established systems.
Brand Name: The more established franchises offer an existing market awareness & brand name to franchisees. Customers become loyal to a particular franchise brand and therefore increase the business for franchise owners in all locations.
Lower Inventory Prices: The collective buying power of a franchise group permits lower costs while purchasing inventory and equipment.
Better Staff Recruitment: A franchise business with a renowned name will have more recruiting pull compared to an unknown business enterprise.
Training and Support: Franchisors provide training programs at new franchise outlets. They are also involved in the promotion of the new outlets.
Experience: The experience of the franchising greatly benefits the franchisee by helping them evade common mistakes and by providing them with proven systems of business operation.
Drawbacks of a Franchise Business
While there are several benefits of getting into a franchisee business, there are many disadvantages as well.
Less Freedom: Franchisees have to share all financial information and adhere to uniform operating procedures.
Royalty Payments: Each year franchisees have to make royalty payments in return for the assistance in operations and advertising.
Limited resources: Some franchisers may not offer all the required resources for the success of your business. Discuss the level of support with other franchisees before making your decision.
Cost factor: Buying a high-end brand name franchise is often beyond the means of many potential buyers.
Broken Promises: Some franchisers may not deliver the kind of support that was promised earlier.
For many, purchasing a franchise is a better option than starting a traditional business. In the light of the facts, one can conclude that buying a franchise option works best for businessmen who can work well in a team environment and have limited business and industry background.
Countries with a thriving retail sector like Singapore and Hong Kong provide many opportunities for Franchisee startups. Moreover, their governments have ensured policies related to laws, regulations and taxation that promotes the growth of entrepreneurship and therefore starting a new enterprise is simpler and faster in these countries.
About the Author
Roger Lee is a Singapore-based freelance writer who writes on a wide range of topics on doing business in various jurisdictions. For more information on topics discussed in this article, refer to Singapore Company Registration and Hong Kong Company Registration guides.
Guardian Financial Groups interview with Franchise Direct