Many Singaporeans dream of making it big by starting their own businesses.
In fact, Singapore has been regarded as one of the best places for doing business for the past few years according to the World Bank’s Ease of Doing Business report.
However, it is common knowledge that starting a business is no mean feat.
Even though one might have a novel business idea, problems such as marketing and establishing a brand might also arise along the way.
Therefore, instead of attempting to reinvent the wheel, running a business with a tried-and-tested formula may be a better option.
This is why many aspiring entrepreneurs choose to operate a franchise instead of starting their own business from scratch.
What Is A Franchise?
A franchising agreement enables the franchisee to use an existing business’ brand, trademarks, and other tricks of the trade in order to market their products and services.
In exchange, the franchisee has to pay a franchise fee, as well as a cut of sales to the original franchiser in royalties.
The franchiser can also impose various rules as to how the business should be run, and franchisees may have to follow rules related to decor and quality control.
It is also likely that franchisees have to undergo a training course to learn how to run the business effectively.
Take convenience store 7-Eleven as an example. It introduced its first franchised store in 1988 and it has since become an award-winning franchisor with over 50 per cent of its stores managed by individual franchisees.
Becoming a 7-Eleven franchisee however, is not very straightforward and involves a seven-step process.
The first two steps include requesting for an Introductory Pack from the company to understand more about the franchise system, while the second step requires you to reach out with any queries.
Next, interested franchisees have to send in an application form. They will be notified within two weeks if they have been successfully shortlisted to attend an exclusive Franchise Presentation.
Their suitability to run a franchise will be accessed via personal interviews and a feedback form.
Once selected, participants can choose from an available outlet to franchise. They will also be required to attend a complimentary Franchisee Training Program.
The Pros And Cons Of Franchising
As with any opportunity, franchising has its pros and cons.
Some benefits most franchises will provide include:
- Instant brand recognition: This is probably the most appealing factor of running a franchise as there is no need for new business owners to build a brand from scratch. Franchisees are able to reap the benefits of owning a big brand right from the start.
- Ongoing guidance: Most franchises will hold training courses for franchisees to understand the ins and outs of the business. After which, there is also likely to be someone from the management who you can reach out to for guidance along the way.
- Marketing assistance: The franchisor is likely to prepare and pay for the development of professional advertising campaigns, which saves the franchisee on marketing budget.
- Skipping the startup stage: Many times, when starting a brand new business, founders spend a long time trying to streamline operations and ensure efficiency. However, with a franchise, there is a tried-and-tested system which has long been developed and refined by the franchisor.
While there is an obvious appeal to buying a franchise, there are also drawbacks to opening a business that requires you to operate by someone else’s rules:
- High costs: The price of starting a franchise is high, and might possibly be even higher than starting a business from scratch. Sometimes, the franchise fee alone might be out of one’s reach. Franchisees will also have to constantly owe the franchise royalty payments for using their name and system.
- Abiding by the rules of the franchise: While the franchisor provides a lot of guidance and hand-holding, sometimes it might stifle the creativity of business owners. Though franchisees still have autonomy in operating the business, they are required to follow the directives of the franchisor most of the time.
Franchise Options In Singapore And Their Costs
If you are buying a franchise‚ you need to ask yourself these two questions first: what brand should you franchise, and what are the start-up costs involved.
For anyone starting a business, determining how much capital is required is one of the most critical piece of information they will need.
Besides the initial investment for rent, renovations, and equipment, the new business owner also needs to purchase inventory, supplies, and other essentials to kickstart the business.
We’ve compiled a table detailing some popular franchise options in Singapore, their franchise fees, and the projected initial capital required.
Do take note that most Singaporean franchisers do not publicly reveal franchising costs, so interested franchisees have to reach out to them to get a quotation.
How To Analyse A Good Franchising Opportunity
Starting a new business requires a lot of time and money. Therefore, it is important to do an initial franchise review before committing a purchase.
Reviewing the background of the franchisor management is a good first step, since it is essential that they have experience in the business sector and franchise industry.
Next, the franchise territory should be defined in a consistent manner and allow for franchisee growth. A franchise territory is the area within which a franchisee is authorised to establish and operate a franchised business.
It is also important that a single territory does not have multiple stores belonging to the same brand present, as that could lead to cannibalising between franchisees.
In terms of money, you need to identify if the franchisor charges other fees beyond royalty fees.
Additional costs for licensing and advertisements will only increase expenses, hence it is important to determine if the price is what you are willing to pay for franchise.
These pointers are some basic steps in analysing a franchising opportunity, but they can go a long way in providing an overview of its potential.
Start Your Own Business Or Franchise?
The decision to start a franchise oftentimes come with many of the same considerations as starting a business.
For a start, is essential to have a passion for the business. One must also have a clear business plan, and be ready to handle a team of staff and run operations.
Of course, the cost to start up also plays an important role in deciding whether or not to buy a franchise or start a business.
Ultimately, it is essential to determine if the pros of running a franchise is enough motivation for you to buy one, and whether they outweigh the cons.
Featured Image Credit: Coconuts / Nestia / Capitaland