The Pros and Cons of Starting a Franchise, Start-Up or General Business
Countless people dream of setting up a company, so that they can work for themselves, be their own boss, work the days and hours that suit them, and enjoy the financial rewards that a successful business can deliver. Here are the main pros and cons of starting up a new business. They will give you food for thought and enable you to look at things from various different and interesting perspectives.
Are you thinking about a start-up or franchise? Here are some pros and cons:
Start-Ups
Creativity And Innovation
If you have set your mind on a startup, then you must be creative, and have great innovative ideas. If you do, then the chances are that you will be much more successful than someone who does not possess these qualities.
Professional Growth And Freedom
Having your own business means that you are free to work any time you want to. Further, depending on what your company does, you may be able to work from anywhere you chose. This is particularly the case with internet-based businesses. And even if the business is not internet based, you are free to conduct various daily duties such as dealing with emails and carrying out administrative and accounting work on a laptop from anywhere, day or evening. You are empowered with personal freedom in what you do, and you do not have to report to a CEO, manager, supervisor, or anyone else.
Also, with regard to growth, a startup has no limits.
Higher Rates of Failure
In comparison with franchise businesses, statistically, startups have a higher percentage of failures. Startup business figures reveal that within the first twelve months, a whopping shut down, within a period of five years, half of them follow suit; and within a ten-year span, just under a quarter fail. To that end, anyone who is launching a startup, must be mindful of the fact that they are getting involved in a high-risk venture. – But on the other hand, if they do succeed, the sky’s the limit!
Franchises: The Pros and Cons
As franchises are proven systems, they offer people interested in taking one on, a higher rate of success. Franchisees only have responsibility for the business’s daily operation, and work under a common procedure which is the same as all the franchises in the group. Further, they receive excellent in- depth training about how to manage employees, the product/s, the PR and marketing strategy, and other elements of operations. In a nutshell, they continuously enjoy national or international backing and steadfast support for their franchise which makes them successful. Popular franchises include: McDonalds, Subway, Pizza Hut and KFC.
Franchises And Brand Recognition
Right from the get-go, because of their name, franchises deliver brand awareness. And because consumers are familiar with the service or product line, this means immediate and elevated sales. To that end, if you start a franchise, you are actually taking on a turnkey concern – and once you have the premises, as the franchise business procedures, operating systems and products are all set up, you are ready and roaring to go.
Upfront Fees
If you are thinking of opting for a franchise, then you are obliged to pay a substantial entrance fee, plus permanent ongoing monthly or annual fees. These regular fees are for the use of the brand name, but they do however, also include various services such as group advertising. This can be very beneficial, as not only does, it makes it less expensive that doing so on an individual basis, it also saves a lot of time attending to it.
Lack of Freedom
Unlike having a business which you founded yourself, being a franchise owner means that you do not have the flexibility to adjust the product or service range, the layout or decor of the shop, or any other aspect of the franchise system. These are mandatory elements of protecting your franchise license, so you have to weight up whether you want your freedom or be subjected to following various rules. Naturally, these regulations are necessary to ensure the consistent standard of the franchise and its product, and its successful model, so for some entrepreneurs, this give and take is worth it.
Though there may be a lack of freedom with what you can do for the business, it’s important to note that you will gain freedom in different aspects of your life. For instance, if you purchase a work-from-home franchise or a semi-absentee franchise, your daily life will dramatically differ from the typical 9-5. This will allow for more balance in your life and give you the freedom to focus on your personal goals.
4 Striking Differences Between Regular Business Opportunities and Franchises
Number 1: Common Brand and Operating System
A franchise set up has various tenets. One of these is that every unit runs under a standard operating system and brand. Such regularity is crucial and enables consumers to know that if they buy their favourite McNuggets in London, when they are out for the day in Brighton, they can go to the McDonalds there and get exactly the same thing. Further, it will be the same price – something that can be an important consideration for parents with several children. The hierarchy behind a franchise system works very hard to guarantee that all of their franchisees are conducting their franchise business in a uniform manner, and that all units are reinforcing and supporting the brand.
Conversely, when it comes to a general business opportunity, normally speaking, unless there is an agreement to use a particular brand name that your company will be associated with, there is no necessity to carry out your operation using brand name. And although you may receive guidance regarding the best ways to conduct your business, there are no hard and fast rules you have to adhere to.
Number 2: Continual Support
Generally speaking, a franchise involves on-going engagement which supports your business. Usually, such programs concern periodical structured contacts which incorporate the latest technology, the regular training of staff, dedicated marketing personnel, and other facets of ongoing operations.
Conversely, while a general business opportunity may also involve continual support, it is not subject to any written agreement, and generally speaking, the procedure is on a flexible basis. Most if the time it is demand-driven, as the entrepreneur reacts to being asked to assist the brand. For example, it could relate to getting involved in a promotion.
Number 3: A Mandatory Commitment to Regular Fees
Unlike a regular business, in a franchise scenario, in order to being able to sell a particular brand, and use the tried and tested operational procedures, there is a long standing legal agreement in place which sets out the regular royalty payments that must be paid to the franchiser. In some cases, the royalties, which are usually paid monthly, are set at a fixed percentage (e.g.10%) of the sales the franchisee makes. Conversely, the royalty could a fixed amount which is paid at regular intervals.
Number 4: Legal Matters
Finally, the major difference between a general business and a franchise, relates to buying the business and agreeing to the associated legal restrictions. Normally, this entails abiding by certain regulations. With regard to franchises, the demands are quite rigorous and at the time a franchise is offered, these revolve around a Uniform Franchise Offering. The latter comprises a great deal of content about the opportunity at hand, and the history and success of the company. There are also certified company audited account statements, bios of the company’s main employees, including the CEO, and details on the franchise’s operational history.
The offering will also state the precise costs and fees related to taking the franchise on, and the restrictions and regulations connected to the conducting the business operation as a franchisee. It will lay out the manner in which the business must be run, however, in the case of some franchises, there may be various flexible elements. And it will state how the franchise must be paid for, e.g., via the purchase of products from the franchisor, a percentage of the monthly/annual turnover, perpetual management fees, a start-out fee, or two or more of these elements.
This is a very important document that determines the relationship, obligations and rights of both the franchisee and the franchiser. It should be considered very carefully after taking legal advice from a solicitor who has substantial experience in the field of franchises. Once you have done this and are sure that it is a better option for you than starting your own general business, then you can sign the contract or pay the required deposit or fees.
Alternatively, if you are starting a general business, then the legal work will mainly be restricted to the premises that you will be renting; employee contracts; the hiring of equipment; and agreements with suppliers. And while it is clear that there is a lot more for the entrepreneur to attend to themselves, and the business system they will use may not be tried and tested like a franchise, as discussed herein, there are pros and cons on both sides. The old adage: “you pay your money and makes your choice,” is very appropriate here, all you have to do, is spend sufficient time thinking about it, and do in depth research.
Written by Carlos Rivas at 1stformations. 1stformations is an online formations company that can normally form your new business within 3 hours. For additional information on forming your new company visit https://www.1stformations.co.uk/.