A franchise or a typical startup?
You may now have looked into the amount of available franchises out there and now stuck wondering what the difference is between running a franchise and a typical business.
Both ventures do have their differences and one key thing you must remember is that a franchise is a link between running your own business and working for an established corporation. Due to this, aspects of running your own startup and working for someone else will crop up throughout the process.
We have detailed some important areas to consider when thinking about the difference between starting a franchise or a conventional company:
Funding a franchise is very different to funding a conventional startup, with franchise costs causing less strain than running a normal business as the franchisor will take on some of the costs incurred with getting up and running. Therefore, starting your own business compared to a startup can a little bit more pricey.
Although a franchisor will take much of the financial burden away from you compared with a conventional start-up, there are still significant initial costs to running a franchise. Of course, compared to starting up your own business, this kind of burden is relatively light. You are paying for a part of an established company’s brand – effectively ensuring a head start on someone starting from scratch. Depending on the franchise, all stock and equipment is likely to be supplied to you, along with premises and help with accounting and insurance.
There will be fewer commitments to soak up your money, allowing you to concentrate on improving the business. As for investment sources, you will rarely need to look further than your bank. With franchising being such a low-risk option, banks are generally very happy to lend money to franchisees, safe in the knowledge they will, at the very worst, have a parent company to chase if things go awry. Therefore, finding finance should be easier for a franchisee than a standard entrepreneur.
Being a conventional entrepreneur means you have to live very much on your wits. There are arguably very few degrees that will teach you what the reality of running a business is like – if you haven’t done it before, you will be taking a trip into the unknown. Also, the ‘safety net’ beneath entrepreneurs can vary greatly or not exist at all. Many people plough their entire savings behind a business that subsequently fails, leaving them with nothing when the debts mount up.
While friends and family can provide assistance with funding and advice, invariably your most important relationship will be with your bank manager. Compared to a standard company, a franchise is a different story altogether. Almost all franchisors provide comprehensive training for their franchisees. Before taking on a territory, you should be given a full run-down of the market you’ll be working in, advice on any equipment you’ll be using and some help on business basics such as accounting, stocktaking and turnover projections.
Having been trained to run a fully-equipped business, the support doesn’t end there. Mostfranchise companies offer their franchisees on-going help in the early days of the business and often put newcomers in touch with more experienced franchise owners for advice. When you consider the support franchisees enjoy compared with their start-up counterparts, it’s easy to see why the sector has such a low failure rate.
Marketing and PR
As a start-up company, it’s imperative that you get your message out there to the right audience. Through carefully targeted newspaper, online or radio advertising, you should be able to reach enough people to get some customers through your door. Next comes the ongoing process of building and maintaining a reputation. Get this right and you will begin to thrive from positive recommendations from satisfied punters.
It can be a long, time-consuming process and a costly one too – advertising isn’t cheap and entrepreneurs often have to think up innovative, quirky ways in which to publicise themselves. As a franchisee, you’ll have the clout of a large, often well-known, brand behind you. You’ll be given all the marketing tools you need to spread the word about your business and will benefit from advertising, sometimes on a national level.
A large franchise company will have dedicated marketing departments that will be able to provide you with all the advice and materials required. Freedom Franchising provides you with plenty of support, but it isn’t exactly the business equivalent of a blank canvas, unlike the experience of normal entrepreneurs. Franchisors have their own criteria on how each of their outlets should look and operate. However much it feels like you’re the ultimate boss on a day-to-day basis, you will always be working to someone else’s vision, not your own.
The amount of freedom afforded to franchisees varies, but you will almost certainly be briefed on how the company wants to be represented, from the uniforms of staff to what suppliers to use. Also, should a franchisor change ownership or fail, the future of your franchise will be thrown into doubt. Likewise, the actions of your fellow franchisees will have an impact upon your image and, therefore, sales. It’s important that you are comfortable with these circumstances before you purchase the franchise, or you could become extremely frustrated.
Making a profit
Franchising holds the upper hand here – with one significant drawback. A franchise companywill demand a percentage of the profits you achieve. They will also ask you to pay periodical fees to retain the franchise license, allowing you continue trading. That said, your franchise will provide you with an ideal platform to make profits in the first place. You will be operating a proven business concept that has a solid reputation and a history of making money. You will be trained to run a business that is fully equipped, with most of the work done for you in terms of marketing and PR, meaning that many of the time and money consuming aspects of starting up a business will not be a factor when running a franchise. Moreover, it’s likely the franchisor will have projections of how your business should grow, with practical advice on how to achieve profitability.