What types of business are cheap and easy to start, and can make you money? In this series of articles, we’ll look at various possible ventures that aren’t complicated to set up. And since most businesses listed here require low investment, there is also a lower financial risk involved.
What Is Franchising & Is It For You?
Let me start with a qualifier — not every franchise business is cheap and easy to start; some require a good six-figure sum of capital. But compared to starting a business from scratch, it is less risky and more straightforward.
Now, let’s dive into the nuts and bolts of this business opportunity.
What Is Franchising?
According to the Federal Trade Commission Rule 436.2 paragraph 6160:
The term ‘franchise’ means any commercial relationship whereby a person offers, sells or distributes to any person goods, commodities, or services which are: (1) identified by a trademark, service mark, trade name, advertising or other commercial symbol; or (2) directly or indirectly required or advised to meet the quality standards prescribed by another person where the franchisee operates under a name using the trademark, service mark, trade name, advertising or other commercial symbol.
Wait, you’ve stopped reading already? Alright… alright… my bad… let me try to explain franchising in laypeople’s terms.
Franchising enables you (a franchisee) to operate a business under a franchisor’s brand (e.g. Subway) legally. In exchange for the rights for you to use and operate under the brand, you pay a one-time franchise fee and a continuing royalty fee (either a fixed monthly fee or a percentage of your revenue).
Here’s an example. Suppose you’re interested in starting a Subway outlet. Under the franchise system, you can do so provided you follow exactly how Subway wants the outlet to operate. This includes decorating the outlet like any other Subway outlets and using the same menu, same uniform and the same operating system. You’ll still incorporate your own company (with your company name), but you won’t be using this name to brand your business because you’ll be adopting the Subway brand. Your customers won’t be able to tell whether you are an outlet operated by Subway themselves or an outlet owned by you, a franchisee. You will bear all expenses incurred in running the outlet, and on top of that, you pay Subway the franchise and royalty fees.
If you want to learn more about franchising, there are several short and accessible online courses offered by Udemy.com that can get you up to speed with this form of business opportunity quickly.
What’s Good & Bad About Franchising?
- You can start a business even if you don’t have any experience in a particular industry (or any experience as an entrepreneur). This is because well-structured franchises have almost everything laid out for you; you simply follow the established system and the well-trodden steps (I say well-structured because you need to look out for rogue or irresponsible franchisors).
- On top of handing over to you an entire business operating system, many franchisors offer training and guidance at the initial phase. So business newbies have absolutely nothing to worry about.
- Companies that operate a franchise are usually those that have established a strong brand name in the market with a proven track record of profitability and sustainability. This means that customers are likely to patronise your outlet because they are already familiar with it. In other words, you don’t need to overspend on marketing to create a brand name or reputation for yourself.
- Because you need to pay a one-time non-refundable franchise fee and recurring royalties, the start-up capital and operating expenditure are higher.
- You’d have no say in a lot of things, including how your outlet looks like, the products and services you offer, pricing, marketing, etc. If you desire the freedom and independence of an entrepreneur, the franchise business is not for you.
- If you are unfortunate enough to partner with an unreasonable or rogue franchisor, you will have to deal with it for as long as your business exists. Some franchisors might promise you the sun and the moon but would fail to deliver, and there isn’t much you can do about it.
- Your livelihood is kind of dependent on the franchisor – if it fails or chooses not to renew the franchise contract with you, again, there isn’t much you can do about it.
As you can see, franchising isn’t exactly for everyone. My advice is that you examine your personality and your need before taking that first franchise step.
What Types Of Business Offer Franchising Opportunity?
While franchises exist in many industries, some sectors are naturally more suitable for this business model than others. Let’s take a look at some of them:
F&B – Fast-food joints and restaurants are amongst the most common types of business that offer franchise. This is because their growth is highly dependent on the expansion of the number of outlets to serve different geographical locations. It is also possible to standardise various business functions and tasks such as recipes, menus, layout, etc. Some popular F&B franchise opportunities in Asia include Subway, Jollibean, Popeyes, Pepper Lunch, Bee Cheng Hiang, Brotzeit, Toast Box, OldTown White Coffee and 4Fingers.
Learning and enrichment centres – Like F&B businesses, the only way learning and enrichment centres grow is by increasing their number of outlets. These centres are more straightforward – and possibly cheaper – for franchisees to set up compared to F&B. Some well-known names include the Kumon Learning Centre, Kinderland, Modern Montessori, Mind Stretcher, Crestar, I Can Read, KinderGolf and My Gym.
Gyms/Fitness centres – Did you notice the sudden influx of Anytime Fitness centres in Singapore? All thanks to their aggressive franchise programme! Other fitness brands that make use of franchise include Gold Gym and Ritual Gym.
Retail chains – 7-Eleven is one of the first few international franchises that were introduced to Singapore in the 80s and has remained popular among franchisees since. Some other local retail chains have also been successful in adopting the franchise model, including pet store Pet Lovers Centre and OSIM.
Services – Franchises also exist in the service industry, such as laundry, cleaning service, pest control and beauty salon. Do keep a lookout for them if you’re interested.
How Do I Start A Franchise Business?
If you wish to explore the franchise business in Singapore, you can visit the Franchising and Licensing Association Singapore (FLA) website, which lists their members that offer franchise programme. FLA also organises Franchising & Licensing Asia, an annual exhibition that showcases the various franchise opportunities offered by local and international brands. Many other countries have similar associations. Just do a Google search, and you should be able to find something quite quickly.
Most companies also advertise their franchise programme on their website, and some would list the necessary qualifications or “must-have” attributes for potential franchisees, such as minimum capital, academic qualifications (for learning centres) or experience. It provides you with an idea of whether the franchise programme is suitable for you.
Once you’ve identified a franchise opportunity you want and are qualified to pursue, you can contact the company directly. Some franchisors conduct regular seminars for those people who have expressed interest to be a franchisee. Whichever the approach, such interactions would provide you with an opportunity to understand the franchise programme better. If you’re serious about the opportunity, the franchisor will guide you through the entire franchisee recruitment process, which usually involves visiting a franchise outlet, signing of the franchise agreement, training, etc.
What Are The Risks Involved?
The risks involved in a franchise business are mainly monetary and commitment.
Firstly, you need to pay a one-time non-refundable franchise fee once you’ve signed the franchise agreement. What you’re paying for is the permission to use the franchisor’s logo, branding, menu, operating system and other trademarks. So it’s no surprise that some franchise fees are relatively cheap while others, particularly those offered by reputable brands, can be rather substantial. Franchise fees can range from a few thousand dollars to hundreds of thousands of dollars, although most brands settle between $20,000 and $50,000. Now, this is just the franchise fees. Don’t forget the usual start-up costs that you need to incur for a new business, such as renovation, equipment, rental deposit, advertising, training, etc.
Once your franchise business is up and running, you need to pay your franchisor an ongoing royalty fee for every sale you made. Most franchise programmes charge between 5% and 8% of your revenue, although some models can charge up to 45%.
In other words, it’ll cost you more to start and operate a franchise business compared to a regular new business. On the other hand, it is less risky because the franchisor already has a proven track record of profitability. You also don’t need to spend a lot of advertising dollars to build up a brand.
A franchise agreement can last from three years to ten years. This means that you’re committed once you put your John Hancock on the dotted line and seal the deal. So, if you’re someone who can’t even commit to a dinner engagement, you better be sure that this is what you want to do.
How Much Does It Cost To Start A Franchise Business?
As mentioned above, you need to pay a one-time franchise fee and ongoing royalty fee on top of the typical cost of starting and maintaining a business. So, overall, a franchise business will cost you more than a regular new business. To estimate the cost of a new franchise business, you can add the franchise fee to a standard start-up cost of $30,000 to $100,000 for a business.
To set up a business, you first need to decide on the type of business structure and then register your business (if you’re doing this in Singapore, the agency to register your business with is ACRA). For more information about the types of business structure and how to register a company in Singapore, please read our article here.