Franchise opportunities can be a good way to start up your own business, but you may need to deal with stiff rules and high costs.
Attracted to the idea of running a business, but can’t come up with a halfway decent business proposal even if your life depended on it? Well, a franchise business might be ideal for you.
You’ll get all the thrills (and spills, if you launch an F&B business) of being in charge, with none of the stress of having to prove your business model in the ruthless open market.
Intrigued? Read on to learn about seven popular franchises in Singapore, and how much they cost in start-up capital.
Understanding franchising in Singapore
What is a franchise?
A franchise is a type of business arrangement where an independent operator (franchisee) applies to a business (franchisor) to operate a stall or outlet on their behalf.
The franchisee agrees to stick to the business model, formula and rules of the franchisor, in return for the right to display and use assets such as logo, brand name and aesthetics, while marketing and selling the brand’s products and services.
In this sense, some who seek to go into business on their own view franchise opportunities as a “business-in-a-box”, ready to go right out of the door.
What are the pros and cons of franchising vs starting my own business?
|Established brand, instant recognition and trust||Unknown brand, have to invest in branding|
|Battle-tested business model||Your business model may have steep learning curve|
|Little to no room for innovation||Can innovate as much as you want|
|Have to share revenue with franchisor||100% of revenue belongs to you|
|Centralised marketing campaigns and support from HQ||Have to manage your own marketing campaigns and budget|
|Training and support resources provided||No training provided|
|May require moderate to heavy capital investment||May be bootstrapped|
Pros of choosing a franchise
Perhaps the biggest advantage of choosing a franchise is that you’ll be launching a business under an established brand, with a proven business model. This can save you the hard work of having to build up a brand from scratch. More importantly, it can help you bypass the perilous initial stage where new businesses are most likely to fail.
As a franchisee, you will also receive guidance and training on how to properly run your business. You can also look forward to centralised marketing campaigns that help to promote your business (although some franchisors may charge an additional fee for advertising and marketing).
You will also order and use the parent company’s supplies, saving you the need to track down suppliers on your own, and dealing with storage, delivery and other logistical issues. This also helps ensure a certain quality standard in the products you sell, which is important in sectors such as F&B.
Cons of choosing a franchise
On the flipside, franchisors are often strict about their brand and image, and franchisees are expected to adhere strictly to a set of rules and guidelines.
Hence, as a franchisee, you will find little to no room for innovation. You certainly shouldn’t expect to experiment with the menu or offerings, at least not without prior approval. This restriction also applies to marketing: you likely won’t be allowed to hold your own Facebook giveaway that is valid only at your particular branch.
Secondly, all that support and advice come at a cost. You’ll be expected to share a certain portion of your monthly revenue with the franchisor. This could range from a flat amount to a percentage of revenue, depending on the terms of the agreement.
Lastly, franchises may require a high start-up cost, especially for well-known ones like Mcdonalds. Some companies may also require a certain level of assets in order to qualify, to prevent questionable parties from mismanaging the brand.
In contrast, launching an independent business may require lower initial capital, especially if you’re planning on a bootstrap approach.
What are the typical costs and fees involved?
In general, franchisees should look out for the following costs and fees.
This is a fee charged for the license to make use of the franchisor’s trademark. It can be tens of thousands or more, depending on the brand.
Initial start-up costs
These include expenses for rental, renovations, labour, and other things. Training fees may also be included here. Expect to set aside hundreds of thousands of dollars here.
The franchisor may charge an advertising fee in exchange for general marketing support and advertising campaigns. This could range from several hundreds to thousands of dollars, and may be a regular or one-time fee.
Ingredients or supplies costs
Some franchisors may charge an additional fee for ingredients or supplies used in the course of business. This will vary according to the volume ordered.
Revenue share paid to the franchisor. May be a fixed amount or a portion of revenue earned.
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This article is contributed by SingSaver.
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