2012-12-31 00:00:00Starting a BusinessEnglishhttps://quickbooks.intuit.com/in/resources/in_qrc/uploads/2017/05/Pros-and-Cons-217x3001.jpghttps://quickbooks.intuit.com/in/resources/starting-a-business/franchise-vs-starting-scratch/Franchise vs. Starting from Scratch

Franchise vs. Starting from Scratch

3 min read

Every entrepreneur, at some given point of time is at the crossroads of deciding a business route. For any small start-up, often, confusion arises when trying to choose between the time proven route – a franchise model and a completely new path – a brand new start-up. Carefully weigh the pros and cons of your two options and choose the one that works best for you. Here are some criteria you can consider: Base Plan Franchise: For a small start-up, the biggest advantage of a franchise is that the initial base is already created. The venture is tried and tested and there is clarity with regard to the business model. New biz venture: The business model of a start-up is entirely credited to the capitalist and is the brainchild of the entrepreneur. The plans of how the business will function are formed and tailored in accordance with his/her requirements without any external consultation. Costs Franchise: The cost to set up a franchise may be relatively higher. Individuals often find it difficult to acquire the large capital requirements that a franchisor would ask for. New biz venture: The cost is solely on the prudence of the entrepreneur as the capital he invests should be feasible to an entrepreneur; hence, completely new start-ups sometimes may call for a lower level of investment. Credit and capital Franchise: A bank or a financial institution would be more willing to back a business backed by a known franchising operation. New biz venture: If you are starting from scratch, you may find it difficult to acquire capital and credit as your small business would still be in its nascent stages with no proven track record. A brand new start-up should have a strong business plan and vision as financial institutions need a strong reason to back the venture. Support Franchise: Franchisee’s receive constant support and guidance from the franchisor. With previous records, budgets, media planning, forecasting, franchises grow faster with the support they receive. New biz venture: A new business venture is like a blank slate. The functioning of a new start up is based on the entrepreneur’s own judgment. While this is not a disadvantage, it can be overwhelming for an amateur entrepreneur, as he/she might need some amount of direction or mentoring. Promotions Franchise: A franchise enjoys a well-established name. They don’t have to bear heavy costs on branding, advertising or marketing as the groundwork of these activities are already incurred by the parent company. New biz venture: A fresh start-up enjoys no previous lineage to leverage on. Start-ups have to ensure all promotional activities are positioned in the most efficient manner as these activities are expensive. Profits Franchise: Franchisees are liable to share a predefined amount of profit to the franchisor. This amount or percentage is additional to the royalty and the advertising fees. New biz venture: All profits made by a start-up are enjoyed exclusively by the entrepreneur. He/she is not bound by any clause or prefixed arrangement, the profit, unlike in franchises, is not shared. Risk Franchise: Franchises are relatively safer options to start a business venture. The risk involved is lower as franchisor are partly responsible for the franchise functioning. New biz venture : New start-ups are more risky since an entrepreneur oft finds himself in a sink or swim situation. Since there is no partner to share a part of the risk, the burden lies on the entrepreneur. On the flipside, start-ups gain from higher returns. Customer base Franchise: A franchise benefits from a loyal customer base right from inception. Since the parent company is a well-settled and established setup, a franchise already has a steady stream of customers. New biz venture: For a setup that is still in the formative stages, a new start-up has to work towards creating a customer base. Restrictions Franchise: A franchise has to abide by the rules and regulations made by the franchiser. Since the business model is defined by the franchiser, a franchise is restricted to make any amendments. New biz venture: For a start-up, all decisions and modifications are decided by the small business owner. This entrepreneur is not liable to consult anyone nor is he restricted. While the franchise model of running a business and businesses starting from ground-up have their own set of pros and cons, it is important for a budding individual to understand what he wants out of his venture. The entrepreneur’s objective towards the venture plays the deciding factor as to which option is most suited.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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