Many people dream of leaving their job and starting their own business. If you are one of those people and you decide to take the leap, then you will need to make a decision about the business model that you are going to follow. Will you start from scratch and build your business from the ground? or will you buy into an existing successful company by purchasing and operating a franchise?
A franchise agreement occurs when a large and established organization, e.g McDonald’s (franchiser) spreads its network by allowing a franchisee to set up a under their brand name and trademark in return for a fee and also in some cases a portion of the profits. The franchisee is contracted to run the business exactly as is set out by the franchisor using their systems and processes.
Here, we will look at some of the advantages and disadvantages to help you which one might be better for you.
One of the most important aspects of setting up a business, is building brand recognition. A good branding strategy aims to be easily identifiable, create positive associations with the brand and to build brand loyalty in customers.
Advantages – If you buy into a franchise then you will be operating within a brand name that has already been established and is well-known and easily recognizable to customers. This means that you will not have to work at building recognition, customer loyalty and trust and you can concentrate on other aspects of the business.
You will not have to work as hard at building a customer base, so you should start making money faster. You will also have the advantage of benefiting from advertising that is done nationally and internationally by the franchise owner.
Disadvantages – You will not have scope for choosing the name, logo, trademark or design that will represent your business as you will be restricted to the existing those of the franchise.
START-UP PROCESS AND BUSINESS MODEL
Advantages – The start-up process for the Franchise should be easy and straight forward, the company will have done it many times before and will have an protocols and practices in place for the establishment of a new outlet. You will have instant access to a recurring revenue model that other businesses have profited by.
As a franchise owner, you will be operating within well tested, modified and successful systems, you will not need to develop systems yourself, but just learn those already in place, and they have been proven to work well.
Disadvantages – While the start-up process will be fairly straight forward once it gets up and running, there can be a long and tedious process to actually get the franchise in the first place, an established organisation is not going to take a chance on you without being sure that you are capable of building and sustaining a profitable business and you will be required to prove this.
You will be restrained to working only within the exact business model that is laid out by the franchisor, you will not be able to make changes or adaptations to suit the local market or to suit your own way of doing things.
Whether you are starting your own business from scratch or buying into a franchise, you will need finance to set up, unless you have all the money yourself, you will need to borrow some money.
Advantages – It may be easier to get money to buy into a franchise, as the lender have more security in knowing that you are buying into a successful brand.
As a franchisee, you will be able to benefit from the bulk buying power of the franchise, helping to keep costs down.
There will be substantially less financial risk with a franchise business, the franchise owners will only award the franchise to people they have faith in and they will carry out a series of checks to ensure confidence in your ability to run a successful business.
Disadvantages – It can be very expensive to buy into a successful franchise brand and you may need significant start up capita.
lf for any reason the business fails, you will be at a loss of the initial investment, you will not be able to reclaim this money.
You will be paying an annual fee to the franchisor for the contract to run the business under their flagship and in some cases franchisees also pay a percentage of profit to the Franchisor, this will affect your profit margins.
Advantages – You will be operating within a system that has been proven to be successful.
Disadvantages – As a franchisee, you will have very little autonomy over your business, there are very strict rules about how the business must be set-up and operated and part of the contract will be agreement to comply. There will be audits and checks in place to ensure that you are doing what is expected.
Advantages – Within a franchise, there will be established practices for the hiring and training of staff and systems for career progression. It may be easier in a franchise to get good quality motivated staff as they know if the work hard, they can move up in the ladder as they are part of a large corporate organization.
Disadvantages – You will be restricted to only using the staff recruitment and retention practices and policies of the franchise with no room for flexibility.
Disadvantages – One of the main disadvantages of operating under a franchise is that it will not be possible to be creative within the business, you will be operating within strict limits on everything. The business layout, decor, staff uniforms even interactions with customers will be decided by the franchise owners and you will be obliged to operate within them. If you have an entrepreneurial spirit you may find this difficult as you may have ideas and plans that you would like to implement.
Advantages – If you buy one of the cheapest franchises to open, you are guaranteed that they will not allow any other franchisee to set up in your area. It is not in the best interest of the overall franchise to have local competition between branches. The franchise owner will also have done intensive research to ensure that there is a market for their product or service in the area, so this increases the chances of success for you as the franchisee.
INDEPENDENT BUSINESS OWNER
Advantages –Your brand identity should capture your target market, identify your product or service offerings and represent your core values and the personality of your business. As an independent business owner, you will have full control over the image you want to use to portray your business in a way that suits you.
Disadvantages –A disadvantage of this is that you will need to work hard to create and grow a new brand, to the point where it is easily recognizable and earns customer loyalty.
START UP PROCESS AND BUSINESS MODEL
Advantages – You make all of the decisions yourself, you can choose to start off small and grow slowly and test the market for viability as you go along with your business, you can hold off on investing large amounts of money until you are sure that your business will have a viable market.
You will have to decide on how your business will be set up, grow and expand, you will be deciding your own product or service range and you may have to try a few different ways of doing things before you find the best one. This however, can be a great learning experience and lead to the best way of doing things to grow a successful business.
Disadvantages – If you chose to go it alone and build your business from scratch, then you will have to plan and implement the start up process on your own. If you have never done this before, it will require a steep learning curve and you may make some mistakes along the way which can cost you time and money.
Advantages – As you may experience more difficulty raising start-up finance than if you were a franchisee, then you are more likely to be careful and prudent about start-up costs so that you do not spend money unnecessarily.
As the sole owner of the business, all profits generated will be for you and if your business is successful this may prove to be the more lucrative option. It may be more difficult to persuade a lending institution to invest in your business, when you are starting out on your own without a track record of being successful in business, but you may be able to set your business up for less by starting small and growing your business slowly at a rate you feel comfortable with.
Disadvantages – Your buying power as a small business owner is limited and you will probably be paying more at wholesale level, thus making it more difficult to remain competitive.
Every business start-up has a level of risk, the onus will be completely on you to make the business work, if you set up as a sole trader, you will be personally liable for all revolving credit and debts incurred by the business. If however, you set up a limited company, your personal assets will not be at risk.
Disadvantages – It may be more difficult to attract a high caliber of staff to a small business, as they may be put off by the lack of opportunity for career growth. On the other hand, if staff are there from the beginning, they can grow and learn with the business and if the business is successful, as a loyal and trusted employee they can benefit from the more personal relationship with the business owner.
Advantages – In a personally owned and operated business, there may be more loyalty and better relationships with staff. Staff may experience more job satisfaction and may have the opportunity to grow with the business and so become very valuable employees.
Advantages – You will have full autonomy of how the business will be run, you will be in full control to do things they way you wish to do them.
Disadvantages – With full autonomy comes full responsibility, you will be responsible for figuring out how to operate you business successfully and the onus will be on you for any mistakes made.
Advantages – If you start-up your own business, you can be as creative as you wish. You get to decide what the corporate identity of your business will be, plan the lay out and decor of the building, try out different ideas and services and products. You will be able to change and adapt your business as you grow and learn. You can listen to your customers, take their input on board and make changes accordingly.
Disadvantages – There is nothing to prevent a similar type business from setting up in your area in direct competition with you and this could affect the success of the business.
Advantages – As a private business owner, you have the autonomy to adapt and change your business to the environment and to ensure that you maintain a unique selling point for your product or service to keep and grow your customer.
Whichever option you choose, if you plan well and work hard, there is no reason that you cannot become a successful entrepreneur. When you are ready to take the step, the folks at qualitycompanyformations.co.uk can help to make things a little easier by helping you complete the registration process in an easy and affordable way.