The business start-ups either come under franchising or owning the business; there might be some confusion for the owners before stepping into the business. Therefore the article analyses the pros and cons of both types, which helps the reader better understand where they would land.
Starting a business requires financial support, supporting teams or colleagues, well-designed brand and strategy. Therefore several businesses begin by contemplating franchising or owning an independent business.
There are quite a few advantages and disadvantages on either side of the business type; therefore, choosing between them requires careful consideration of your financial stability and goals would land you in a better place. This article shares the key considerations one must not miss when deciding between the two. Moreover, the report also helps you to broaden your knowledge of the legal specifications related to the two, so let’s dive in.
Franchising vs Independent Business
A franchise agreement is when the owner has already established their brand across the locality or globally and possesses the sole ownership of their branding, rules, knowledge, and services.
Therefore the owner, who is called a franchiser, is bound to provide the strategies to carry out the business, determine the locality, and control the business operations.
Therefore the franchisee has to invest some amount as an investment for carrying the identity of the established brand and has to imbibe the regulations set by the franchiser.
Whereas the independent business is solely created and curated by the developer, the owner has to look for the right name that can reach out to potential customers, establish their branding, and look after the other operations related to the business.
Therefore this would take time for the owner to establish and gain value among their customers and distributors. As the owner has to look after the strategies, he has to take care of the requirements, analyse, and understand the pain points. Therefore, it requires more effort and study to initiate the business and carry it out successfully.
Which is better taking franchise or own business?
What should a beginner do? Which is more financially rewarding? What is your goal- establishing your brand or gaining financial stability? Making a decision based on these questions and understanding the difference between franchise agreements vs Independent Business ownership puts you on the right path. The Franchise Document is Crucial for Business Owners.
With this information, let’s move on to the pros and cons of franchising business:
Pros of Franchising
- Building a new business model from scratch requires more effort and time. Moreover, it takes a qualified educational degree and deep insight into how the business world works. Therefore the ones interested in taking up a business without much knowledge or effort might find franchising more suitable for their requirements.
- The franchisor will craft a well-established business model with the choice in case of depreciating growth. The company will carefully consider several aspects and has the power to recruit skilled professionals to contribute to the company’s growth. The franchisee has to adopt the established business model and has to adopt the successful formula.
- The franchisor will provide detailed procedures and the required plan sheet for a successful business operation. Especially the pre-training and the ongoing training during the business operations benefit both the franchisor and franchisee.
If you are too concerned about your financial goals and understand how the franchising model works, what are you lacking on your side? It would be better to carefully analyse your requirements and what you lack to initiate the business process.
For example, if you take up the business from Domino or Arun icecreams, you don’t have to spend time spreading the brand value among potential customers. Therefore people who adopt the franchising business model are more successful in terms of their financial stability.
Cons of the Franchising
- Franchise fees: The franchisor will demand a certain percentage of the turnover as a fee for sharing the identity and branding value of the established company, which is considered an additional fee in the course of business. The fee might begin with 5% of the sales and grow up to 30-50% of the profit your yield later on.
- Higher capital: the franchiser will demand a certain capital from the franchisor up-front, which will be mentioned in the agreement, which might hinder the entry of several start-ups.
- Negotiation is limited after the agreement is made: business might face ups and downs; however, the franchisor holds you on the lease agreement, and being under the franchisor’s control might hinder your personal business growth. Additionally, you can’t open up your ideas after the agreement is made and have to undergo the consequences due to the poor ideas and strategies guided by the franchisor.
Get to know the more details of the important topic: KFC Franchise in India 2022-2023 – Cost, Process and Requirements
What Should You Check in a Franchise Agreement?
- Details of the franchisor and franchisee, and the relationship you share with the franchisor, will be worded in an agreed manner.
- Validity of the agreement: duration you agree to stay in the business relationship with the franchisor. After which, you shall not use the name or strategies utilised by the franchisor and don’t come under their control. However, the duration can be extended.
- You are expected to pay a franchise fee and royalty for using the company’s value and success formula as a franchisee. This is usually paid every month. You must also get it on the agreement about payment mode.
- Choosing the site: the site or the location where the franchisee is expected to lay the extended store of the franchisor. Since the location and the local customers’ priority might affect the business’s growth, the franchisor has better control over choosing the store’s location. The franchisor can also choose to set limitations related to selling the product or service.
- Standards of Business Operations: details of the goods and services provided by the franchisee, advertising strategy, and promotional activities to be carried out.
If you aim to establish your brand and let the world know about your idea, and serve the people in the way you like to take the business, you would be more inclined to initiate your own business. On the other hand, if you are willing to attain financial stability, you will be more interested in franchising. Therefore take time to sit down and evaluate your requirements and pitfalls related to business processes. Take the help of renowned experts in the field like Vakilsearch to keep yourself in safer hands while you go through the franchise agreement procedures.
- A Guide On Format of Franchise Agreement
- Elements of a Good Franchise Agreement
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