Preview

Starting a Business vs Franchise

Good Essays
Open Document
Open Document
596 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Starting a Business vs Franchise
Extended Response

Explain the differences of establishing a business from scratch and setting up a franchise. Evaluate the success of franchises in Australia (refer to examples).

There are significant differences between establishing a new business and setting up a franchise. Starting a business from scratch often takes a long time and a large amount of capital to accomplish, but the rewards can be substantial. A franchise is a business that is licensed to trade under a recognised brand name for payment of a fee (e.g. McDonalds, 7-11, etc). A franchisee purchases the franchise from the franchisor and operates under their name while paying fees. The factors involved in choosing one of these two options differ considerably and include the amount of risk, cost, operations and reputation.

Establishing a new business involves the highest amount of risk due to the entrepreneur being solely responsible for everything that occurs in the business. In addition, there is a significant threat of failure for any new business which can result in huge losses for the business owner. Without a previous business reputation, it may prove difficult for entrepreneurs to secure finance which in effect significantly limits their access to funds to pay for establishment costs. Starting a new business gives the owner greater control over all key decisions and operations, as a result allowing the owner to set up the business exactly how they wish. Establishing a reputation for a new business is a slow process since a customer base and marketing campaign needs to be developed to generate sufficient sales for the firm. As a result, a new business will experience a slow growth in profits and may not be able to achieve a high level of profits at the start.

Setting up a franchise presents the lowest risk due to already being established and generally selling widely recognised products. The costs associated in purchasing a franchise vary significantly depending on a number of factors

You May Also Find These Documents Helpful

  • Best Essays

    Analysis of Pret a Manger

    • 1559 Words
    • 7 Pages

    The National Bank of New Zealand, Solution Guide June 2004. Franchising your business: The Fundamentals. Page 4.…

    • 1559 Words
    • 7 Pages
    Best Essays
  • Powerful Essays

    A franchise is a legal agreement between franchisers and franchisees that consents use of the franchise’s trademark and trade name or marketing plan to sell products or services (Kubasek, Brennan, & Browne, 2012, p. 791). Through a franchising arrangement franchisee can profit from implementing another’s efficacious business model. One of the most attractive advantages is the high probability of success of 90 % as compared to 20 % for small businesses (Staring and Naming a Business Presentation, 2012, Slide 9). Other advantages include established franchise reputation, operational support and training, product research and development, and better access to financing. On the downside, business plan rigidity can deprive the quality of customer service and hinder a creative business owner. Thus, both the Clayton Act regulates business competition and price discrimination (15 USC §§ 12-27; 36 Am J1st Monop etc §§ 141, 142) and the Sherman Act is a federal antitrust act (15 USC §§ 1 et seq; 36 Am J1st Monop etc. § 141) protect the public and small business owners from monopolization and market power.…

    • 1470 Words
    • 6 Pages
    Powerful Essays
  • Satisfactory Essays

    Mrkg 1311 Chapter 12

    • 490 Words
    • 2 Pages

    When you buy a franchise, you are buying an established concept that has been successful. Statistics show that franchisees stand a much better chance of success than people who start independent businesses; independent businesses stand a 70 to 80 percent chance of NOT surviving the first…

    • 490 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    The franchisee/ franchiser relationship has its benefits, but also one major downside which can cause conflicts and controversies. “At the heart of the franchise agreement is the desire by two parties to make money while avoiding risk” (Schlosser 94). In starting your own business, there is a huge financial risk. Even if you have an amazing idea it takes a lot of well managed money. Becoming a franchisee, though, while still costing a good amount of money, the risk is considerably smaller because the name, advertising and product is already out there. “One provides a brand name, a business plan, expertise, access to equipment and supplies. The other puts up the money and does the work” (Schlosser 94). Franchising makes it easier for companies to expand their market and profit from that. “The relationship has built-in tensions. The franchisor gives up some control while not wholly owning each operation; the franchisee sacrifices a great deal of independence by having to obey the companies rules” (Schlosser 94). When putting that amount of money and work…

    • 954 Words
    • 4 Pages
    Better Essays
  • Good Essays

    Eco-201

    • 617 Words
    • 3 Pages

    How should goods and services be produced. After some research of opening a this franchise I found that the most important recourse to start a franchise is money:…

    • 617 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Wahoo: Franchisees

    • 354 Words
    • 2 Pages

    Franchisees also have less cost. Franchisees benefit from national and regional advertising put in place by the franchiser. They can also benefit by buying more than one franchisee and receiving discounts on fees.…

    • 354 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    1. Franchisees gain numerous advantage when they purchase a franchise. First, while a franchisee may be opening a new store, it is part of an already established business and system. This means a franchisee has access to turnkey operations, allowing an increased speed to establishing and growing the business. Franchisees also get support for management and training activities, as well as financial assistance. Going hand in hand with this, a franchise already has an established brand name, quality of goods and service which have been standardized across the franchisor’s larger company, and national advertising programs from franchisors. Franchises also have large-volume, centralized buying power. A franchise has proven products, and successful business format. Finally, site selection and territorial protection is offered for franchises. All of these advantages increase the chance for a new business in a franchise to be successful. While there are many advantages to a franchise, there are disadvantages as well. First and foremost, in order to own a franchise and take advantage of all the benefits of owning a franchise, there are fees and royalties which are ongoing for advertising, use of the franchise name, products and services, and for use of the business system. A franchisee must also adhere strictly to regulations and standards imposed by franchisors. Franchisors also require the purchase of supplies and equipment from approved suppliers. Franchisors can also restrict what products can be offered in a store, which limits the product line as a whole. This results in an overall limit of freedom which entrepreneurs who start their own business do not have to deal with. Finally, and possibly most relevant from a business standpoint is market saturation. Franchisees have grown tremendously fast in recent years, resulting in an overwhelming number of franchises in the market place.…

    • 1767 Words
    • 8 Pages
    Good Essays
  • Good Essays

    Ideal Capstone Project

    • 1323 Words
    • 6 Pages

    Franchises have a business model created, and sometimes it is easier to open a business that it is already in the market. By learning how to open and run a franchise will teach me essential skills that will help to later create my own brand and my own franchise. I will choose to open a franchise related to the type of business that fills my interests. In some cases, franchises have a higher rate of success than start-up businesses and some of them cost less than startups. Franchises offer pre-opening support and ongoing support. I believe I will learn a lot about the businesses environment by doing a Capstone project in this…

    • 1323 Words
    • 6 Pages
    Good Essays
  • Good Essays

    A food cart franchise is a “copy” or “duplicate”, if you may, of an already successful business. The true value of a food cart franchise is the experience, know-how, and the operation procedures that comes with it. In franchising, there is the value…

    • 648 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Franchise

    • 121 Words
    • 1 Page

    Franchises have a higher rate of success than start-up businesses. When you buy a franchise, you are buying an established concept that has been successful. Statistics show that franchisees stand a much better chance of success than people who start independent businesses; independent businesses stand a 70 to 80 percent chance of NOT surviving the first few critical years while franchisees have an 80 percent chance of surviving (Michael M. Coltman, Franchising in Canada: Pros and Cons, Self-Counsel Press).…

    • 121 Words
    • 1 Page
    Satisfactory Essays
  • Powerful Essays

    Top ten business franchise

    • 2768 Words
    • 9 Pages

    The results of Entrepreneur 's 35th annual Franchise 500 confirm that franchising continues to rebound, with these top 10 franchises leading the way. Here we highlight their success strategies and plans for the upcoming year.…

    • 2768 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    Name four ways one can start a new business and the advantages and disadvantages (figure 1-3) of each one. What is difference between franchisee and franchisor? And what is the definition of a franchise?…

    • 659 Words
    • 3 Pages
    Good Essays
  • Good Essays

    The concept of franchising revolves upon a franchisor and a franchisee. The franchisor who is the owner of the business grants a licence to the franchisee to use their products and business idea in return for a percentage of gross monthly sales and a royalty fee. The franchisor will provide help and support to the franchisee which will be selling the franchisors product or services which will also be using the franchisors trademark. The…

    • 3401 Words
    • 14 Pages
    Good Essays
  • Powerful Essays

    International Franchising

    • 2646 Words
    • 11 Pages

    This paper is concerned with evaluating the structure, history, cultural aspects, leading businesses, and the future of international franchising. Franchising has become an increasingly popular market-entry mode, and the use of franchise systems for expansion into international markets is expected to continue and perhaps intensify. (Arthur Anderson, 1996) These business franchises appear as hotel chains, fast food restaurants, and many others.…

    • 2646 Words
    • 11 Pages
    Powerful Essays
  • Powerful Essays

    Arfa Batik

    • 3300 Words
    • 14 Pages

    This overview introduces our business and its strengths, and outlines the dynamics of our Franchise System.…

    • 3300 Words
    • 14 Pages
    Powerful Essays