What
is a franchise?
Are
you are one of those who wish to start a business venture on your own
but do not have the experience and confidence? Why not consider franchising?
You get to set up a business on your own but not of your own. With a
franchise you get the permission to run the business, but using methods
that have been already tried and tested by another company, called the
franchiser.
How
to set up a franchise?
You
pay the franchiser for a package. This allows you to sell his or her
business (products), to use the brand name and trademark, methods of
operation, technology or products for a fixed period (on a renewable
contract basis). All this comes for a price of course, called the franchise
fee (paid when start up) and an on-going royalty fee.
Once accepted
as franchisee, the franchiser provides you the licensed privilege to
do business. In return, you agree to run the business according to the
franchiser’s methods and standards.
Let
us consider both sides of the coin, for an unbiased perspective.
What
are the benefits?
•
Statistics consistently suggest that a franchise is more likely to succeed
than an independent business. Hence the risk is lesser.
• You get an established product or service along with national/regional
brand name recognition. Whereas an independent business is based on
both an untried idea and operation.
• It is often possible to obtain lower-cost goods and supplies
through the franchiser as a result of the `group purchasing power’
of all franchises.
• Management assistance from franchiser includes accounting procedures,
merchandising and personnel management and training.
• Many elements of the business plan such as standard operating
procedures, technical know-how etc, are already established by the franchiser.
Thus ensuring quality control and uniformity among the franchisees.
• The most difficult aspect of a new business is to set it up.
Here the experience of the franchiser is available through formal instruction
and on-the-job training. This helps reduce mistakes that are costly
in terms of money and time.
• The regional or national marketing is done by the franchiser.
• A franchiser will often assist in financing by making profitable
and safe arrangements with a lending institution to lend money to the
franchisee.
What
are the drawbacks?
•
Payment of initial franchise fee. It must be affordable by you and must
provide a reasonable return on investment.
• Continuous payment of royalty fees (a percentage of the gross
income from the business), as well as cooperative marketing payment.
• Conformity to standard operating procedures and pace of functioning,
of the franchiser.
• Restrictions on selling products or services other than those
approved by the franchiser.
• Risk of the franchiser turning out to be under financed and
inexperienced.
• No way of extricating yourself from a relationship with the
franchiser other than by selling the business.
• Failure of the franchiser is likely to spell failure for the
franchisee as well.
There
are a plethora of franchise opportunities to choose from, depending
on your interests and priorities. As a franchisee, you must be willing
to limit your independence as an entrepreneur but considering all the
gains, the scales do tip in your favour. Franchise is definitely an
option to get started with, when you wish to start-up.