Franchising VS Starting Your Own Business

Franchising VS Starting Your Own Business

Franchising is growing at a splendid pace in India.  It has witnessed a growth of 30-35% over the last five years and the overall turnover is estimated around INR 938 billion.

Presently, the sector contributes 1.8% to the Indian GDP and is estimated to contribute to around 4% by 2022.

As one of the fastest growing economies of the world, India attracts myriads of foreign brands to itself that are looking for earning sizeable revenue and provides entrepreneurs with a room for experimenting with the audience.

Thus, India has enormous potential for franchising business. The present article would shed light upon the benefits associated with franchising against starting your own business.

1. Brand Recognition:

Franchises function under an already recognized brand and thus, it is already an established business.

When you buy a franchise, you’re buying into a brand that thus far has presence and traction with its target markets.

When you start your own business, there is a risk and pressure to establish a brand, create the circle of loyal customers and build your marketing system whereas while franchising, you just have to enhance the existing reputation and ensure revenue flow.

2. Capital:

It is known that that the major barricade to expansion faced by today’s small businesses is lack of access to capital.

However, franchising offers you the flexibility to invest in limited amount with assured returns and facilities and thus, some relief in terms of capital.

The primary reason behind franchising the business is that it permits business entrepreneur to expand without the debt or the cost of equity.

Capital generated through the sale of franchises can be used by franchisors to continue to develop and expand the franchise system.

3. Risk Factor:

In the franchising model, franchisee is the one who executes leases for equipment, autos, and the physical location, and has the liability for what happens within the unit itself.

Franchisor would not have to risk its capital or sign lease agreements and employment agreements. Hence, franchising has substantially reduced risk.

4. Rate of Success and Failure:

A franchise is a proven system and all franchisees operate under a common system. In franchising, franchise partners get trained about the product line, marketing, how to deal with staff and other aspects of their daily activities.

The ongoing support that franchisees receive brings them success. In a study conducted by Franchise Insider, it was concluded that more than 90% of franchises were still in business after two years and 85 % after the first five years. 

While in case of independent businesses, around25% fail within their first year. 50% of the remaining fail within five years while 30% of the remaining stay in business for 10 years.

5. Marketing and Materials/Supplies Costs:

In case of franchising, the marketing/advertising cost is mandated by the franchisor to pay for national and local advertising efforts while advertising efforts of independent businesses will have to be pluckier than franchises since you’re solely responsible for creating your brand’s identity.

When it comes to costs for materials and supplies then it would be both affordable and of high quality in franchising since franchisors will have established deep-rooted relationships with their suppliers.

Owing to franchise’s collective buying power, materials will be reasonably priced. However, in case of independent business, it is just the opposite.

When you’re running an independent business or starting your own business, it takes time to develop a trusting relationship with suppliers and to feel confident that you’re getting the quality products in affordable price. Also, you do not get benefit from collective buying power like franchisees get.

6. Growth, Profitability and Business Value:

Opening a single unit takes time. Franchising allows companies to compete with the competitors so they can saturate the markets before others.

Also, the staffing leverage and ease of supervision in the franchising model lets franchise run in a highly profitable manner.

Thus, franchisors are often valued at a higher multiple than other businesses owing to the combination of rapid growth and increased profitability.

Hence, on multiple grounds, franchising stands way higher and beneficiary than starting an independent business from scratch. Now, it’s upon you to choose the path.

Dhinal Baxi

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Dhinal Baxi is a founder of franchise Insider. As a founder, he has served hundreds of clients. His experience from the financial sector has helped them to achieve great success in the franchise world.