Many Singaporeans dream of making it big by starting their own business.
According to the World Bank’s Ease of Doing Business report, Singapore has been recognized as one of the best places to do business in recent years.
However, it is common knowledge that starting a business is not an easy task.
Even if you have a novel business idea, problems like marketing and branding can also arise along the way.
Therefore, instead of trying to reinvent the wheel, it might be better to run a business with a proven formula.
Because of this, many aspiring entrepreneurs choose to run a franchise rather than starting their own business from scratch.
What is a franchise?
A franchise agreement allows the franchisee to use an existing company’s brand, brands, and other tricks to market their products and services.
In return, the franchisee must pay a franchise fee as well as a reduction in sales to the original franchisor in license fees.
The franchisor may also set various rules for running the business, and franchisees may need to follow rules related to decoration and quality control.
It is also likely that franchisees will need to take a training course to learn how to run the business effectively.
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Take the 7-Eleven supermarket as an example. The company launched its first franchise business in 1988 and has been an award-winning franchisor ever since. Over 50 percent of its businesses are managed by individual franchisees.
However, becoming a 7-Eleven franchisee is not very easy and involves a seven-step process.
The first two steps involve requesting an introductory package from the company to learn more about the franchise system, while the second step involves answering all questions.
Next, interested franchisees must submit an application form. You will be notified within two weeks if you have been successfully shortlisted to attend an exclusive franchise presentation.
Their suitability to run a franchise is accessed through face-to-face interviews and a feedback form.
Once selected, attendees can choose from an available outlet for the franchise. You must also attend a free franchisee training program.
The pros and cons of franchising
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As with any occasion, franchising has its advantages and disadvantages.
Some of the benefits that most franchises offer are:
- Immediate brand awareness: This is probably the most attractive factor in running a franchise business as new business owners don’t have to build a brand from scratch. Franchisees can reap the benefits of a big brand right from the start.
- Ongoing guidance: Most franchisees offer training for franchisees to understand the pros and cons of the business. After that, there is likely also someone from management to seek advice along the way.
- Marketing support: The franchisor will likely prepare and pay for the development of professional advertising campaigns, saving the franchisee marketing budget.
- Skipping the start phase: Often, when starting a brand new business, founders spend a long time trying to streamline operations and ensure efficiency. With a franchise, however, there is a proven system that has long been developed and refined by the franchisor.
Buying a franchise is obviously attractive, but there are also downsides to opening a business where you have to follow someone else’s rules:
- High costs: The cost of starting a franchise business is high and potentially higher than starting a business from scratch. Sometimes the franchise fee alone is not within reach. Franchisees must also continually owe franchise license fees for the use of their name and system.
- Compliance with the rules of the franchise: While the franchisor offers a lot of guidance and hand-holding, it can sometimes hurt the business owners’ creativity. Although franchisees still have autonomy in running the business, most of the time they have to obey the instructions of the franchisor.
Franchise Options in Singapore and Their Costs
When buying a franchise, the first two questions you need to ask yourself are: What brand should you franchise and what are the startup costs?
For anyone starting a business, determining capital needs is one of the most important pieces of information they need.
In addition to the initial investments in rent, renovation, and equipment, the new business owner will also need to purchase inventory, supplies, and other essentials to keep the business going.
We have compiled a table that lists some popular Singapore franchise options, their franchise fees, and proposed initial capital.
Table of some popular Singapore franchise options / Photo credit: Vulcan Post
Note that most Singapore franchisors do not publicly disclose franchise costs. Interested franchisees must therefore contact them for an offer.
How to Analyze a Good Franchise Opportunity
Image credit: NTUC
Starting a new business takes a lot of time and money. Therefore, it is important to do an initial franchise review before purchasing.
Reviewing the franchisor management background is a good first step as it is important that they have experience in the corporate and franchise industries.
Next, the franchise territory should be uniformly defined and allow the franchisees to grow. A franchise territory is the area in which a franchisee is authorized to set up and operate a franchise business.
It is also important not to have multiple stores of the same brand in an area as this can lead to cannibalization between franchisees.
Regarding the money, you need to determine if the franchisor charges any other fees beyond the license fees.
Additional costs for licenses and advertising only add to the cost. Hence, it is important to determine if the price is what you are willing to pay for franchises.
These pointers are some basic steps in analyzing a franchise opportunity, but they can go a long way in helping you understand its potential.
Starting your own company or franchise?
The decision to start a franchise is often associated with the same considerations as starting a business.
To start with, it’s important to have a passion for business. One also needs to have a clear business plan and be ready to lead a team of people and conduct operations.
Of course, the cost of starting up also plays an important role in deciding whether to buy a franchise or start a business.
Ultimately, it is important to determine whether the benefits of running a franchise are sufficient to make a franchise purchase and whether they outweigh the disadvantages.
Selected image source: Coconuts / Nestia / Capitaland