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Should You Buy a Franchise or Start a Business From Scratch?

  • Manish Khanna
  • Franchise
  • December 10, 2020
Should You Buy a Franchise or Start a Business From Scratch?

When you have decided to become an entrepreneur, it is apparent that you are looking for an opportunity to lead an organisation. However, you must be aware of the adage – uneasy lies the head that wears the crown. The job can be extremely demanding and stress-inducing if you build a business brick by brick. This is the reason why many aspiring entrepreneurs take the shorter route to success and purchase a franchise for sale in Australia.

It may seem like the easier option, but is it recommended? Do you think you will be better positioned to earn profits with a proven business model, or will you thrive in a start-up? The question is significant and needs to be answered before taking the plunge. If you are caught up in this dilemma, then let us help you ease the tension by offering a rundown on the pros and cons of both entrepreneurial platforms. Here is the information that will help you to reach a logical conclusion.

The Merits of Owning A Franchise

  • Low Risk of Failure

A franchise business is considered risk-proof because itworks on proven processes which are successfully tested. You do not have to spend copious amounts of money on building the business from the ground up. With a franchise, you get a well-structured organisation with all the policies in place. The turnkey business is ready for trading and starts generating income sooner than expected. It comes with the advantages of a solid supply chain system, well-defined work practices, exclusive geographical territory, marketing and advertising support, brand recognition and reputation, and much more.

  • Quick Recognition

The best part about buying a franchise is that you do not have to build a brand or spend on creating brand awareness. The customer base identifies the brand and is easily attracted to the new outlet or unit. With established market goodwill, it is easier to find new customers and convert them into loyal buyers. It reduces the marketing budget that goes into building a new brand in the cluttered marketplace.

  • No Experience Needed

Unlikea business where you need to be an expert in the field to understand the tricks of the trade, a franchise gives you the freedom to step right in and start operating. You do not need any prior qualification or experience in the job to acquire a franchise. The franchisor is responsible for training you and your staff in the procedures and management of the unit. Some franchisors offer online training courses coupled with on-site coaching to instil confidence in the franchisees. They also offer ongoing support after the takeover to help with the day-to-day dealing, selling, marketing and customer management. You can benefit from the manuals and technical assistance provided by them.

  • Easier Funding

Since a franchise is a well-known entity with forecasts of a thriving bottom-line and stable cash flow, it is easier to secure funding for it. Moneylenders, banks and financial institutions readily agree to finance a franchise and hassle of paperwork is also reduced. 

  • Marketing Support

Planning the marketing mix and deciding the ad spent requires professional experience and knowledge. With a franchisor waiting to offer marketing assistance, the franchisee can sit back and relax. The head office takes care of promoting the brand through various media channels and platforms. Some of them provide each unit with a dedicated website to increase sales through online shopping. They provide all the marketing material and collateral, such as point of sale material and in-house branding. The franchisee only has to provide the advertising fee.

The Demerits of Owning A Franchise

  • Ongoing Royalty and Fee

You have to share a part of the income as advertising fee and royalty for the use of the brand name and intellectual property. It is an ongoing expense which is either charged annually or quarterly.

  • Controlling Terms and Conditions

You have to strictly follow the Franchise Code of Conduct and the terms mentioned in the Franchise Agreement and Manual. It means that you cannot make any changes to the product, the offerings, marketing plan, etc. However, you can make suggestions which can be implemented by the franchisor if found agreeable. If you are comfortable working under standardised procedures and do not mind following rules and regulations, then you can enjoy the process.

The Merits of Starting A Business From Scratch

  • Creative Satisfaction

When it comes to giving wings to your imagination and developing an idea into a business, nothing beats the level of satisfaction achieved through the launch of a start-up. If you are brimming with revolutionary ideas and cannot work according to the guidelines laid down by others, then starting a new business is your best bet. However, you should be ready for the backbreaking work related to setting up the organisation, hiring a team, finding customers, brand building, marketing, and much more.

  • Flexibility and Freedom

You can soar like a free bird and work your own hours and make your own schedules. You are the final authority in your organisation and are answerable to no one. Thus, you can make your own rules and processes that seem comfortable and in alignment with your personal goals. You can build the brand and grow the business the way you like.

The Demerits of Starting A Business From Scratch

  • High Risk of Failure

The risk of failure is quite high when it comes to start-ups. Most of them fail within five years of their inception as they are unable to sustain the financial and commercial challenges. The enormous workload, business loans, stiff competition, dissatisfied customers, expensive stock, and supplies, etc., can all lead to the shutting down of the shop before it can realise its potential. Without the right support and funds, it is impossible to get the desired returns.

  • Lack of Resources

Most start-ups operate on a meagre budget and do not have the financial standing to hire experienced candidates or invest in research and development of new products. It makes them lag in the rat race and leaves them dissatisfied due to the lack of talent, processes, required cash flow, desirable raw material, established suppliers, partners, etc. The liabilities often are higher than the assets, and the growing stresslevels make everything go awry.

  • Funding Challenges

When you seek a business loan for a start-up, more often than not, you have to face rejections. A lot of banks and lenders are not ready to support a business which is unable to substantiate the financial projections. Most of the times, they have to rely on crowdfunding and borrowing from family and friends. Also, investing personal savings in the business creates financial debts and tax problems for the entrepreneurs.

  • Absence of Processes

With no expert onboard and lack of business procedures and policies, it becomes difficult to manage the operations. It can lead to poor customer management, wastage of stock, strained relationships with vendors and partners, mismanagement of funds and overspending.

Conclusion

While both the business formats have their share of advantages and disadvantages, it is quite evident that purchasing a franchise for sale in Australia scores over a start-up. The benefit of working as an independent business owner under the aegis of an established network works in favour of running a healthy venture.