Why should I buy a franchise when I can start my own business?

86% of Malaysians today want to be a business owner. This is clearly on the extreme end of the spectrum, but it also shows a lot of desire to work for our own rather than someone else. And if you’re reading this article, you’re probably one of them.

So, you have what you feel is a big idea, which can earn you a lot of money? Or, you might not have it. Therefore, the next best thing you can do is to become a franchisee.

Well, that’s fine. 

There is nothing bad about buying a franchise vs starting something. One is not necessarily better than the other. In fact, there are multiple successful cases for both. The only thing you need to know is to find the one that’s a good fit. Don’t commit before a clear understanding of what you want. 

Here are some key points to consider before choosing the one that works for you:

Control

For a franchisee, you will have little voice over the strategic planning of the business. The franchisors can make the business decisions without the obligation to seek for your approval. This might include putting another franchisee to operate nearby, run store promotion, new SOP etc. However, starting your own business, you can exercise total control on every aspect of your business. You can amend or remain any procedures however you like.

Cost

It may cost you more initially to buy a franchise than starting a business. Most franchisors will provide a basic breakdown of the expected cost, so you are aware of the initial and ongoing expenses that are incurred. Whereas owning a business is like a journey, the learning along the way comes at a cost. Things like how to start a business, which equipment/ raw material to buy, how to hire, and more. It could end up being more costly in the long run. 

Return

If you want to make more money, then focus on building your own business and franchising it out. However, it takes time to establish a customer base and brand equity. As you know, there is no guarantee of success because the probability of success is not by your side. Some people who prefer low risk, instant and steady return, franchise is better because it’s business and method of working are tested. 

Supply

An important part of starting a business is to source your own suppliers, monitor their quality and negotiate well in pricing. In the case of a franchise, franchisors will do all the hard work. As a franchisee, you can benefit from the franchisor’s vendor network and economies of scale. A few big customers may be responsible for the supplier’s profit, so it’s important for them to consistently deliver excellent products and services. Nonetheless, franchisors purchase in bulk and pass on the savings to all their franchisees.

Innovation

Any kind of innovation needs money and time. Sadly, not all the effort spent will work. With a smaller budget in an independent business, you can’t afford to allocate too much resources and run multiple experiments in a short period of time. With each new successful offering, it boosts profit in business tremendously. Therefore, franchisors are equally motivated to innovate, but with a bigger budget. 

Support

As a franchisee, you will receive continual support and extensive training from the franchisor. You can rely on their help to negotiate leasing with landlords with better terms, tap into national or regional marketing budgets which may go up to millions and secure finance to purchase the franchise. Unlike franchises, you can only depend on yourself or your circle of network if you’re starting a business from scratch.

Exit Strategy

Exiting a franchise is easier because franchisors have a larger base of prospective franchisees due to brand familiarity. Or if you are desperate for an exit, then you can sell to the franchisor at a pre-negotiated deal. On the other hand, independent businesses are more difficult to exit due to the small pool of prospective buyers and may have to sell at rock bottom prices.

Which One Works for You?

Generally, franchises are suitable for people who are a system follower or with no/ little business experience because systems and training are put in place. But if you are entrepreneurial and  have a strong business history, starting your own business might be the best option. However, it’s really a choice only you can make to decide which is right. In the end, do your research, put in hard work and pray for some luck to improve your chance of success!