Business Coach Column by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) from the Manila Bulletin
If you plan to be an entrepreneur, you must study what is best for your situation, whether to start a business on your own or buy a franchise. Are you willing to share the profits in exchange for the relative safety of a franchise, or do you prefer the risk—and rewards—of pursuing your own vision?
Before everything else, you must decide if you are indeed ready to handle a business. Do not think that buying a franchise is just like buying property and collecting rent. Be prepared to spend a lot of time tending your franchise venture although it will be less taxing than starting from scratch. Make no mistake—a franchise is not a passive investment, it is a business that must be actively nurtured.
How do you choose what to do? Take into account the pros and cons listed below to guide you:
Pros of a Franchise
• Brand recognition. Almost all experts agree that the greatest advantage of having a franchise is the attraction of a well-known brand. However, not all franchises have strong drawing power; therefore make an effort to ascertain its true brand value. Unfortunately, those who have the strongest brand are also the most expensive.
• Proven operating system. This is a great selling point especially for those who have no business or management experience. Truly, the devil is in the details: what are the right procedures, policies, and control systems? One indicator of a franchise worth paying for is if its operating manual is almost too heavy for you to lift!
• Better possibility of maintaining your job. Since franchisors usually have good control systems already installed, it is easier to hold on to your current job while running the business.
• Easy to get a good location. For many types of business, location is the most critical factor and it is easier to get a lease if your business name is well known. Landlords are picky nowadays. They want to be sure that a tenant can pay their bills. In the case of malls, they want a tenant that can attract more customers.
• Marketing support. Independents have no economy of scale and so are limited in their marketing options. Being part of a nationwide chain makes high value activities like advertising on television feasible as the cost can be spread among hundreds of branches.
• Higher success rates. Studies worldwide have consistently shown that the survival rate of franchises is higher than those who started on their own. But note that success rates for franchises differ greatly and so be very meticulous in selecting!
Cons of a Franchise
• High start-up costs. Usually the investment needed will be double or far more than the capital if you will be starting on your own.
• More expensive supplies. It is a common practice that supplies may only be sourced from the franchisor or its accredited suppliers. While this may be necessary to maintain the quality standards, it often results in higher costs.
• Royalty fees and other charges. Of course, this cuts into your profit!
• Less flexibility in operating the business. Most franchisors will require approval before you can deviate from their operations manual. If you need to do something drastic fast to counter an aggressive competitor, you may feel frustrated if you cannot act immediately. And if you disagree with the mother company’s policies, you may have no choice but to comply if the franchisor insists.
• Problems of the franchisor affect you too. As if your concerns are not enough, you will also be affected in case there are problems within the franchisor.
Each of the factors discussed must be weighed according to their relative importance. You may be, for example, very eager to get a good franchise, but if you cannot afford the higher start-up costs then you have to eliminate buying a franchise as an option.
Either buying a franchise or starting your own business may be the best choice for you. Ultimately, your personal situation will decide what is ideal. Just do not forget that a franchise is a business too and demands a high level of involvement to ensure your success.
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