Before you think of your own business, think about this
Most people believe that to be financially free, you have to start your own business. It’s better than just getting that meager paycheck at the end of every month just to finish it before the next one is out.
Becoming an entrepreneur opens doors to various opportunities but before you begin, should you start a business from scratch or should you leverage on an existing brand through a franchise?
Both options have their pros and cons. Ultimately, you need to ask yourself these questions to see if it makes sense to pocket your revenue entirely or share it with the franchiser. At the end of the day, a business is all about profit and loss.
Do you need the extra support and guidance?
Not everyone is born to be an entrepreneur. Some may need a little help to get them going. This is how a franchise can offer the right support to get you started.
When it comes to having a franchise, the franchisor usually provides all the infrastructure needed for your franchise to succeed. This includes ongoing support from the start to the end, minimizing risks that could cost you a significant amount of money. If your answer is a resounding yes, then go for a franchise.
Do you have money to start from scratch?
Most start-up businesses lack the funds to simply set up the business. Things like staff training can take up a huge part of the company’s expenditure. By having the training done by the franchisor, new companies can save on training expenses and still ensure the quality of the products or services will be up to the required standard.
Starting a franchised business also means you don’t need to build up a network of contacts of suppliers as all will be provided and guided by the franchise company.
By providing the same suppliers used by other franchises, discounted bulk purchase prices have already been negotiated by the franchisor on your behalf. This will definitely save you money in the long run.
Depending on your business, sometimes starting from scratch can come up with similar amounts as buying a franchise. Depending on the type of business you’re looking at, perhaps in the long run a franchise business offers enough perks to help you reduce your overheads.
Can you afford to franchise?
One of the most popular local franchise fast food restaurants is Jollibee. A franchise with Jollibee will cost about Php 25-35 million. This amount includes the franchise fee, construction of the store, kitchen equipment and facilities, furniture and fixtures, air-conditioning system, signage, and pre-operating expenses.
Being a franchisee also gives you the permission to use the brand and the operating system of the company and you can save on marketing fees as well.
Buying a franchise does require a substantial amount of capital. However, if you are planning to take up financing, by having a well-known brand to back you up, it may be much easier to get your loan approved.
Do you have the marketing expertise?
No matter how perfect your business model is, it will take time and money (lots of it) before you build a client base and reputation with your own brand. With a franchise, the brand has already established its reputation and a loyal client base – you just need to open the door to your business! As a result, you can expect to get faster returns on your investment (ROI).
On-going marketing and promotions by the franchisor also help in driving clients to your specific business. A huge corporation like Jollibee has a team of marketing and branding experts who work tirelessly to ensure all franchise owners get to reap the benefits of their effort.
This can be positive or negative. As a franchisee, it will be an extremely difficult situation if the franchisor company can’t capture the attention of the market with their marketing strategy. It is impossible for you to make the necessary adjustments to change the direction or the customer perception of such a large brand.
Do you want total control of your business?
One of the drawbacks of buying a franchise is that you will not have total control or autonomy of running the business. Yes, you control your franchise unit in terms of the culture and values you set, and who you hire and fire, but you must follow the franchisor’s processes and procedures.
You will be stuck with what they are offering. If you are the type who wants to be experimental with what you sell, and if you have dreams of trying out a new pricing, a new product or a different strategy, then opening up a franchise will contradict your vision and goals.
What is your risk tolerance?
Let’s face facts, at the end of the day a business is a type of investment, where you put in the capital and expect return over a period. The whole point of buying a franchise means that you will be guided in such a way that you have a higher chance of getting a positive ROI. But of course, franchising isn’t foolproof.
Some companies were made for the purpose of a company’s own growth and not really their franchisee’s success. Losing money on a franchise is still a possibility, especially for lesser known franchises.
Similarly, starting your own business may possibly result in loss, too, but of course, you are not tied to any contract or condition.
Becoming an entrepreneur is not easy regardless of whether you choose the franchising route or the start-up route. What you need to do is to weigh your options well. If you have enough money to experiment, but no skills or experience to manage a business from scratch, then buying a franchise may be the right option.
However, if you are the opposite, with a tremendous amount of idea, but minimal capital, then opt for a low-risk start-up business that can potentially grow as the years go by. There is no specific answer as to which option is better. But these questions should help you narrow down your decision.
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