Choosing the right business model is crucial to determining your entrepreneurial success. Most no
... vice buyers often struggle to decide between a fra...
Choosing the right business model is crucial to determining your entrepreneurial success. Most novice buyers often struggle to decide between a franchise vs chain business when stepping into a business acquisition process. In today’s business dynamics, ‘franchise’ and ‘chain’ are often used interchangeably. Although both models focus on growth and expansion, they differ significantly in terms of operations, control, ownership, and risk.
When owning a business for sale United Kingdom, understand the key difference between the two and make an informed decision. Franchises are individually owned by franchisees when they pay for the right to operate under an established franchise brand or network, while chains are fully owned, controlled, and operated by a single parent corporation. Here is a comprehensive guide to understand the key difference between franchise and chain business models. This information will clear your doubts and let you choose the right entrepreneurial path for unbeatable success.
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1. What is a Franchise?
A franchise business model allows driven individuals, known as franchisees or franchise owners, to run their own businesses under a trusted, renowned brand, the franchisor.
Franchisees are required to pay an initial franchise fee along with ongoing royalties for using the trademarks, business systems, and proprietary knowledge of the franchisor. You, as a franchisee, can create your own success story by leveraging the benefits of strong franchise goodwill, a loyal customer base, and proven SOPs. Plus, the franchisors are always ready to support you for higher success and maximum returns.
2. What Does a Chain Business Model Mean?
A chain business is a model in which multiple locations operate under a single brand and ownership. They may differ in size, but to qualify as a chain operation, you must have at least two locations.
Unlike franchises, the majority of chain locations don’t have independent operators. In fact, they are directly managed by the company, the owner of the brand. So, it is good to do proper research when seeking a business for sale United Kingdom for ultimate success.
3. Understanding the core concept of Franchise vs Chain
A chain is a business that operates in multiple geographic locations and is owned by the same owner. The parent company is responsible for generating higher revenue streams and for covering any unit's growth and losses incurred by any unit in the chain. Examples of chain businesses are Mark and Spencer, Sainsbury’s, John Lewis, etc.
A franchise, on the other hand, is purchased and operated by individual franchisees. Franchisees hold a licence to use the franchisor's brand and sell its products. This helps the franchisor to earn royalties. Training and support are provided to maintain the quality and brand consistency. Examples of franchisees include McDonald's, Starbucks, Anytime Fitness, and Pizza Hut.
4. Funding the Business: Franchise Vs Chain
Under a chain business, the parent company sets the foundation and develops the new units for operations. The funds to run the chain stores are secured from the brand's profits. The business owners can also secure a loan to fund the new stores in multiple locations to incur leasing, stocking, staffing, and other operational costs.
However, driven individuals looking for a business for sale United Kingdom opt for a franchise opportunity because it offers strong franchise support and network. New franchises are financed by the franchisees who own them. Under this, the franchisor uses the selling price for fit out, site selection, training, marketing, and lease expenses. They also set a part as their income from the sale.
5. How Chain Businesses and Franchises Keep Their Brand Consistent?
Since the parent company operates and manages all the units, the owner is in charge of stocks, marketing, and, of course brand. Therefore, there is no flexibility when it comes to altering the branding rules and standardised procedures.
In contrast, the franchisees have control over their units with support from the head office. They are required to follow the operational manual and sell products according to the instructions by the franchisor to maintain the brand consistency. However, it sometimes becomes difficult to maintain standardisation across units. If you fail to follow the protocols, put directly put the brand image at stake.
6. Potential Risk in Chain vs Franchise
There is no denying that a retail chain business is a high risk model as it directly invests in the units. They are responsible for everything, including the profits and losses that can put your business at risk. For instance, if one of the units in the chain is incurring heavy losses, it can be difficult for the business to maintain a positive cash flow. This means that one underperforming unit can affect the overall financial performance of the chain.
On the other hand, a franchise is a low risk model because the losses faced by the franchise units don’t affect the brand image. Since the franchisee invests in the unit, the franchisor only takes a portion of the profits as royalties; this doesn’t cause any major financial damage to the company.
7. Training and Support: Chain Business Vs Franchising Model
In chain businesses, training and support rely on standardised modules regardless of market variations.
Novice entrepreneurs looking for a business for sale in United Kingdom often opt for a franchise model because it comes with complete training and operational support from a head office. Upon purchase, you will get a comprehensive training for seamless operation from day one. You will be trained to conduct effective marketing strategies to keep up with customer expectations.
8. Understanding the Revenue Model in Both Options
In a chain business, everything is owned and operated by the parent company. Therefore, the profits remain centralised. Whether any specific unit generates higher revenue, the company owner keeps all the revenue.
Under a franchise model, a franchisee keeps profits from selling products and services but pays royalty fees to the franchisor. The only risk to this model is reduced profits due to high royalties and fees. But choosing the right franchise business can make a world of difference. Make sure you value the business before making the final buying decision.
Wrapping Up
Chain businesses and franchises may serve the same purpose, i.e., an ultimate growth and success, but the way they work and operate completely differ. From ownership and funding laws to brand consistency, everything varies in both models. Make sure you choose the right one when seeking a profitable business.
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