Miriam is a freelance developer who enjoys writing articles.
Franchise Versus Business: Which One Should You Choose?
To franchise or not to franchise, that is the question. Isn't it better to just initiate a business, growth documenting sounds interesting, but hold on, is there a point of re-inventing the wheel? Can't beginning from a pedestal position and continually improving from where the franchisor has reached yield a similar experience? Many a time, entrepreneurs juggle between the decision to franchise and that of proprietorship. Well, grab your hiking gear and let's go up this hill together.
Definition of terms
So, what exactly do these terms mean? A franchise is a contractual agreement between a company(franchisor) and an individual or group(franchisee) in which the franchisor grants the franchisee an opportunity to carry out business or provide a service under the company's name whereas a business is an entity owned by an individual or a group which provides goods and/or services at a fee.
The main difference between the two ventures is their modus operandi. A franchise is controlled by the system outlined by the franchisor while a business is guided by the technical knowledge possessed by the initiator or the group that has started it. Since we fully understand how both ventures work, we can now proceed to view the discussion using eight pointers.
The industry affects this decision in three ways; namely, the availability of franchising options, the technicalities of product design and the established relations. More often than not, the digital space offers little or no opportunities for franchising hence predisposing the proponent to the start-up option.
An industry such as the automotive industry may limit the opportunity rendered to proponents as well. This is because the particulars involved in designing automobiles may be beyond the scope of the skill set present thus forcing them to lean towards franchising. Also, the automobile franchisors prefer to use product franchising(using the franchisor model to distribute ready made goods) so as to maintain uniformity and preserve the quality of the product.
In the clothing industry, the generation of a constant customer flow takes a long duration, as people tend to exercise loyalty to brands. Franchising in such a case assures a proponent of frequent customers and wholesale purchases as the franchisor has already established favourable relations with the market.
With the prevalence of unskilled labor solely, starting a business would be impossible due to the lack of personnel required to transform an idea to the end product. This however, isn't such a hindrance to franchising as the franchisor can facilitate a skill equipping program to the laborers in the said locale which will then upskill the labor force.
The costs of transforming the raw materials to the final market-fit product as compared to the cost of importing an already manufactured product is a factor worth considering.
The amount of money available for the venture is an important aspect. In franchising, the franchisor may provide means by which financial aid may be sought if it's needed whereas when requiring financial assistance in business, the proprietor seeks loans on their own accord.
The knowledge and experience possessed by the proponent determines whether franchising or start-up route is the best choice. If the proponent is well versed with the manufacture of the goods, the prevalent market and the skill set needed, initiating a startup might be a better route as they will be involved in making the critical decisions that affect the running of the enterprise. In franchising, the important decisions are made by the franchisor and his team.
The existing trust levels of a brand in a selected locale might favor franchising as the demand is sure as opposed to starting a business which demands an effort to win the client's trust.
The existing legislation concerning imports should be considered when making the decision. Franchising may require one to import specific goods either for purposes of maintaining the quality of the brand product or in cases where franchisees act as distributors of the good. In cases where the raw materials are present but franchising requires importation, if the importation tax in the selected location is high due to the aim of promoting local goods, leaning towards the business wing might be cost effective. Also, the existing feudal and state laws concerning running businesses and franchising should be carefully considered.
Starting a business is a huge risk as everything begins from a clean slate whereas operating a franchise is somewhat a lesser risk as the brand has already been proven and established. In a franchise, you're buying into an existing system whose tested expertise is freely accessible to you whereas in a business, nothing has been tested and proven yet. How comfortable the proprietor is with the level of risk is an important determinant.
What is your verdict?
Time to weigh the two options in the balances. Both options are profitable when run correctly and remember, everything is a risk in business. Wishing you luck as you make the decision
© 2022 Miriam Monyonko