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Franchise or not?

Written by Bennie Groenewald on 13 Sep 2019.

Bennie Groenewald

LLM Tax Law, B.Proc, HDip Tax, PED (IMD Switzerland)

The Tax Shop Head Office

So, you are employed but not happy in your job and thinking of starting on your own. Before you take the plunge and quit your job, you should ask yourself, “what kind of business can I start that will help me reach my goals? Of course, if you decide to leave and start your own venture, you cannot be sure that owning your own business means you’ll be successful. If buying an existing business doesn’t sound right for you, but starting from scratch sounds a bit intimidating, you could be suited for franchise ownership. In a large corporation the employer controls the employee’s activities. Running your own business means you control your own activities but without a safety net of support. A franchise operator is somewhere in between these opposites.

There are a number of advantages associated with franchising which should appeal to many.

  • Training, guidance and ongoing support by the franchisor is a distinctive feature of franchising,
  • Buying into a well-known national franchise brand offers a much better chance to succeed,
  • A well-established and proven track record is a clear sign that the franchisor has already proved that the enterprise can be successful, and
  • The cost of starting a new business far outweighs the cost of buying a franchise license.

In addition to these benefits, buying a franchise offers many other advantages that aren’t available to entrepreneurs starting a business from scratch. New franchisees can avoid a lot of the mistakes that start-up entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error.

Moreover, a franchisor enjoys the benefit of strength in numbers when it comes to negotiating preferred rates and prices on everything needed to operate a franchise. This leads to economies of scale resulting in attractive proportionate savings in which the franchisee shares. Buying bulk marketing material, supplies and services, such as advertising overshadows independent operators who have to negotiate on their own, usually getting less favourable terms.

Research has shown that the age of a franchise brand, number of franchise licenses in operation, the intrinsic value of becoming part of a well-established business model and national footprint, are all reflected in the cost of a license fee and royalties.

It has been said that franchising is designed to put people into business who have never owned a business before, so what are you waiting for?