When starting a retail or service business, you should consider whether to “start from scratch” or use an existing business object. According to the US Small Business Administration, a franchise is generally less likely to fail than starting one alone. Although statistics on this matter vary greatly.
If you are going to use an existing business structure, the main issue is whether you are buying from an agency or a franchise. When properly defined, there are significant differences.
What is Franchising?
In general, franchising is a complete business model planned or established by a corporate employee, much like any other business in its chain. Typically, this is a turnkey operation where the franchisee purchases an entire store with some modifications of their choice, depending on the franchise agreement. Typically, you will use the franchisor as the primary or sole supplier of goods for sale or use in your services. McDonalds and UPS Stores are two examples of franchises.
What is Dealership?
A dealership is usually an agreement on the ability to sell a specific product or service. This agreement may or may not be exclusive depending on the territory. This may include the right to be an authorized service center for the product, if applicable. In exceptional cases where the entire company is a dealer, the agency is usually more independent in terms of business model, product availability and exclusivity. Reseller registration is usually free or of minimal cost, subject to initial purchase and setup. Car dealerships are a good example of a car dealership.
Franchise vs Dealership
1# Degree of Control
One of the key differences between the two is how they are run. The dealership is run by an independent business, and the franchise is run by a franchisee. Only parent company gives them advice on how to deal with them, but they don’t necessarily follow this advice. They choose prices for goods and opening hours. Franchising represents the entire company, which means that managers must abide by all the rules and regulations of the company.
Franchisees must pay their parent company royalties on a monthly basis for brand marketing, and they need to pay a certain percentage on monthly basis to the umbrella companies. No need to deal with too high commissions, which allows you to save a large part of your income.
3# Working of Business
Another important area of concern is how they conduct their business. Independent dealerships are operated by an independent entrepreneur and franchisees have the appropriate franchisee participation. Franchisees come with set rules and regulations that you cannot follow. Franchising is less popular with people. Most entrepreneurs hire freelancers because they can run the business however, they like.
Franchised dealers have less or lower interest rates for funding, and this is done through your manufacturer’s financial services department. They are also more likely to provide financing to people with less than excellent credit, making it easier for people with poor credit to finance that has been turned down by a franchise dealer. making it easier for people with poor credit to finance that has been turned down by a franchise dealer.
5# Initial Start-up Costs
The costs of setting up a franchise are significant. Entrepreneurs must pay franchises, equipment, and other licenses. You also need to find people to recruit. These employees must undergo training and this is an additional cost, on the other hand, the dealer does not need to worry about these costs. For the most part, you have to bear the costs of licensing and purchasing the product.
Another difference between them is their goals. The franchise must be consistent with the goals set by the franchisor (parent company). The franchise owner must also purchase a fixed number of products from the parent company. If the franchisee does not meet these requirements, the franchisor can close. The owner of the dealership sets his own goals. If he achieves his goal, it’s up to him.
7# Targeted Sales
Franchises are affiliated with the parent company and have set the corporate goals they need to achieve. In any case, if they fail to complete the business, the business will be able to close their business in the long run. Independent dealerships are not involved in a specific sale because they work according to your wishes and run their business accordingly.
8# Investment Requirements
Setting up a franchise requires a lot of money and the person involved must pay various fees such as franchise fees, license fees, etc. and you must also go through the recruitment process. The amount of costs incurred by the franchisee compared to independent dealers are a lot in connection with licensing and purchasing a product.
9# Customer Service
Manufacturers sometimes expect their dealers to follow certain rules when dealing with potential customers and existing customers. This is why it should come as no surprise to find an official franchisee with a lounge that offers coffee and snacks, however here are some additional services that represent an expense for the dealership, which is why independent or private dealers are focusing more on additional services including the services they provide to their clients.
Another important differentiating factor between the two is the training bit. Franchisees must adhere to the manufacturer’s set of training standards. These standards or guidelines may include online or classroom training and development programs. Management personnel should be aware of the manufacturer’s warranty and its application. This is done by the parent company to ensure that all quality standards are met by dealers.
The Bottom Line
If you are looking for a dealership that primarily offers new products, as well as customer service and brand awareness, then a franchise is the perfect choice. If you prefer to buy used products from different manufacturers without worrying about exclusivity, an independent dealer may be your best bet.
Owning a franchise means there are manufacturer-specific rules and guidelines that you must follow. These restrictions do not exist when you have an independent dealership, so if you yearn for that kind of freedom, this is also important.