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Buy a franchise or start from scratch?

Apr 03 2013 14:42
*Manny Nichas

The Ocean Basket business model began as a mix of owned and franchised stores, and the directors had therefore given this point considerable thought before opting to make Ocean Basket a purely franchise restaurant chain.

Most people starting their businesses from scratch tend not to think at first of a franchise - usually they have a skill set they are keen to leverage and typically want to be their own boss. What such people often fail to appreciate is that these desires can be entirely accommodated by buying a franchise.

Being an independent business owner means you have to contend with franchise heavyweights that have a lot more resources for advertising and marketing, as well as ready-made brand recognition.

When creating a startup business, most entrepreneurs have little time and less capital for getting their name out, especially in cut-throat markets like food service, hospitality and retail.

Therefore, things to consider if you are starting a new business and most likely putting all of your energy into operations, is: who will drive the sales? What product or service will you be offering?

Do you know how to draw up a business plan for raising finance? Is your location already crowded with businesses of the type you want to start?

Are you okay with having to deal with all of the hard decisions that come up in business, dealing with all the stakeholders such as customers, staff, banks and investors?

Owning your own business can be incredibly lucrative, especially if it is a “blue sky” type venture, but it can take years for such a business to turn a profit. It is for all these reasons that the idea of buying and owning a franchise has taken the retail market by storm as the preferred business model for many entrepreneurs.

There are many other reasons too. For instance, there is a higher failure rate among new business ventures than among those who buy a franchise.

This is because they enjoy no management support or franchise community for advice or to bounce ideas off.

If you start your own business, it’s often more difficult to get financing for a company that doesn’t already have a track record.

There are also no economies of scale in terms of purchasing and real estate, no brand recognition, and higher costs for things like advertising and design - costs that are shared in a franchise system.

A franchise is based on a proven business model. There is very little trial and error to owning a franchise.

*Manny Nichas is CEO of Ocean Basket seafood franchise.


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