Franchising or starting a business, which would you prefer? If you had all the money in the world to start a business, would you rather start a business from scratch and face all the challenges that come with it or would you rather buy a franchise?
Businesses are started or run because of profits and also as an opportunity to offer help or assistance to people in the form of a product or a service.
Mostly, people do not understand in detail, the hustle business owners go through to set up a business from scratch when they dream of starting one.
This article would quickly examine what a franchise means and seek to explain which is better between buying a business and owning a franchise.
Let us take a minute to understand what a franchise is in its simplest terms.
What is Franchising in Simple Terms
In simple terms, franchising is the business relationship that exists between a business or brand owner (called “the franchisor”), and another party (called “the Franchisee”) that uses the business or brand’s name and/or structure to run a business and pay some form of a dividend to the business owner.
This is to say that a franchise acts somewhat like the branch of a “main” business.
A clear example of franchising at work is McDonald’s which has well over 38,000 shops (franchises) worldwide with only 2,636 of that total number belonging to them.
In essence, you can buy a “franchising right” from McDonald’s and just start operating with their name and business models only to pay them a certain agreed return per time.
Below are some requirements to run a McDonald’s franchise.
- A minimum initial payment of $500,000 in cash
- Franchise fee of $45,000
- Great business experience (relevant to the business ecosystem)
- An amazing credit history
- A detailed business plan
Another good example of great franchising is that of the Japanese educational network, Kumon.
Kumon was created by Japanese, Toru Kumon, a renowned mathematician whose main focus is on teaching young students mathematics and reading.
Kumon currently has more than 2,000 franchises and also has some requirements you must meet if you intend to buy a ‘franchising right” from them.
Is Buying a Franchise Better Than Starting Your Own Business
If you are considering what is best between franchising or starting a business, you might as well considered what your business goals are at the moment.
On paper, starting a business seem to be a hard nut to crack with all the struggles of breaking into a market you have no stake in whereas buying a franchise looks like an easy way to start a business.
Let us look at a few reasons why you may favor franchising over starting a business from scratch.
Few Advantages of Franchising
- Franchising gives you the leverage of running a business with an already established name and structure.
- Unlike starting a business from scratch, franchising takes care of the business structure and merely gives you a template to operate with.
- The failure risk associated with running a franchise is far lower than that of starting a business from scratch.
- With a franchise, your focus is mainly on quality service delivery while the brand offers you relevant assistance whenever needed.
With these listed, one may think that it is all rosy but let us take a look at starting a business from scratch and match it with running a franchise.
Few Advantages of Starting a Business
- Starting a business from scratch gives you the liberty to grow with the business while forming it into what you want it to be in the long run.
- With starting a business, you own the monopoly of business secrets and do not run the risk of your “franchisee” taking along your secret should the contract be terminated.
- Unlike a franchise, your business gives you total control of your profits and business income; you do not have to pay anyone any form of royalty if you start your business from scratch.
- When you start a business from scratch, you also become placed in the position to sell a franchising right to anyone who wants it and dictates how the business plays.
Obviously, the best choice as to which is better between franchising and starting a business from scratch lies with the people involved and their business goals.
If you would like to be in total control of the business and owe nobody any form of royalty, then you should start a business from scratch and stick with it until it breaks through.
Alternatively, if you can stomach running a business with the model and procedures established by another and have no problem handling all that comes with it, why not?
The ultimate challenge now becomes that of patience, discipline, and availability of funds to start a business from scratch and scale fast.
Not minding the fact that a franchise “almost” guarantees a ready market, a “fresh” business that appropriately carries out due diligence would easily break into an already saturated market, not minding how impossible it may seem.
Which would you want? Franchising or starting a business from scratch?