The British Franchise Association explains the differences between starting your own company from scratch and investing in a franchise
Over the past two years the UK has seen redundancies rise and unemployment levels climb. While the current economic climate has resulted in real hardship for many people, it’s given others the opportunity to start their own businesses.
When unemployment increases, it is not uncommon for a rise to occur in the number of people looking for work to start their own businesses, and in many cases become franchisees. So what’s the difference between someone starting their own company from scratch and investing in one of the many franchises operating in the UK?
Vast and varied
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Franchising is a robust business model, fuelled by dedicated individuals. It encompasses many different skills and backgrounds and opens up opportunities for people looking for a new start in the business world. In fad, today the range of franchise businesses is vast and varied and no longer limited to just a few fields of operation.
The differences between a franchise and non-franchise business become apparent when you take a closer look at both. When choosing a traditional business start-up, you must think of a concept you feel will succeed commercially. The business start-up sector already has many competitors in various different areas, so how would your new company compare to already established businesses offering similar products and services?
When considering the franchise route, a decision must also be made about what concept would best work for you. However, prospective franchisees have a choice of a number of already proven business models that have been refined over the years by experienced franchisors. So it’s important to bear in mind that when you choose a franchise you are also choosing a method of business that offers limited flexibility. Would-be franchisees must also be able to demonstrate to their chosen franchisor that they are the right candidates and have what it takes to add value to the brand.
Free rein
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For some people going into business for themselves, the chance to be their own boss and shape their company accordingly is attractive. An independent start-up gives you free rein without the restrictions of the predefined structure found in franchising, which may put some people off.
However, investing in a tried and tested business model provides reassurance that the concept is commercially sound, as the franchisor has already been through the start-up stage, introducing new ideas until a robust proposition was found. This formula is what franchisees follow - giving them a greater chance of success. Statistics support this, as nine in ten franchisees make a success of their venture, which is six-seven times greater than the average business start-up survival rate.
It’s also important to analyse the support structures behind both models. From time to time a fledgling business may need a helping hand, or a push in the right direction. This is where franchising comes to the fore. From day one, a franchisee is given the support they require to establish and grow their business, unlike an independent start-up owner, who’s levels of support will be based on what they can find and afford.
From a financial perspective, the major banks tend to be supportive of established franchises and are more willing to lend to them than an independent start-up.The harsh reality is that banks justify their policies through evidence from the business world - evidence that highlights that franchising is a successful business model. This high rate of success is what is lacking within the non-franchise sector, meaning banks in turn do not take the same approach as they do with budding franchisees.
Time and effort is another major consideration when considering either a franchised or non-franchised business.
A business start-up has the benefit of dictating its own work style, but this limits the chances of success. While franchisee targets are set by the franchisor, this does not limit growth or profits, but helps them succeed. After all, it’s in a franchisor’s best interest to help its franchisees succeed.
What works best?
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There is no right or wrong answer to this question, as it all depends on what you are looking for from a business. Starting a new company from scratch presents a number of challenges and growing it successfully is no easy task - the reality is that more fail than flourish.
On the other hand, franchising has helped many people start their own business for the first time. But it also has its restrictions. Franchisees are required to work within the boundaries of a proven model and invest a considerable amount of time and dedication.
Whatever business format you choose, a financial investment of some sort is required, and so risk is an important factor to consider. No investment can be guaranteed, especially when it depends on your own efforts, as well as your franchisor and the market place for your product or service.
The many advantages of becoming part of an industry that’s worth £12.4 billion to the UK economy may influence you to invest in a franchise. First there is the support you receive from day one, acting as the stabilisers you will need in the first few months of business. Then there is the favourable financial backing, without which none of your goals can be achieved. But most importantly there is the proof - a franchise is statistically more successful, supported by a tried and tested business model, than an independent start-up.
One thing is for certain, whatever path you decide to take you are going to have to be committed and not the sort of person who gives up at the first hurdle. If you make sure you have the right attitude, it will make a world of difference.
