It’s not everyone who will have the experience and financial capability to start a business from scratch. The many hurdles that may stand in the way, such as the need for branding, establishing a business identity, and financing the registration, can make even an experienced entrepreneur think twice before dabbling in the setting up of a new company. But thanks to franchising, you can ride on the wings of other established brands to either make a passive income or gather the capital you need to start your own business.
Whether you are a citizen or permanent resident of Singapore, this article will help you understand what it takes to start a franchise business here. But before we go deep into the nitty-gritty, let’s first explain what this business concept means.
What is Franchising?
Franchising is a contractual business arrangement between an established brand (the franchisor) and a willing agent (the franchisee). In this arrangement, the franchisee uses the franchisor’s systems and structures to sell the latter’s goods or services to consumers. Thus, the challenge of establishing a functional or successful company will be handled by the franchisor. At the same time, the franchisee will only use the established marketing structures and business operations to distribute or sell the company’s products.
As most franchising agreements go, the willing agent must apply to the company of interest and wait to see if their application is successful. If the application succeeds, the franchisee usually pays a fee stipulated by the company and must also pay any royalty as the franchisor requires. In short, when you take up a franchise, you are acting on behalf of a business to serve its customers. The business isn’t yours, and you are only using the shop/space, brand name, and other structures put in place by the franchisor to help reach their customers.
Benefits of a Franchise Business
If you are considering franchising, it’s crucial you understand what you stand to gain and lose. But let’s first consider the pros of this business idea:
- Access to an already established marketing platform or structure.
- Tried and tested management setup.
- Most franchises can be replicated in different locations.
- You get access to ready-made business names and brands that can quickly translate to success.
- You don’t have to go through the technicalities of setting up and registering a business in Singapore.
- You can become a franchisee for both local and foreign firms.
Downsides of Business Franchise
- For most established franchisors, the initial fees they require from franchisees are often high. You can expect to pay between $20,000 and $40,000 in fees to land a deal with a renowned Singaporean brand.
- Diversification can be difficult because you aren’t the owner of the ideas, products, and processes upon which the company operates.
- You will inherit or be affected by any negative public image or perception regarding your franchisor.
- Your growth capacity is limitless as a large chunk of the growth determinants in business do not depend on you.
Factors to Consider Before Starting A Franchise
Like any other business, you need to consider some variables and be sure they favour you before embarking on any franchise. This section highlights a few of these important considerations.
While it is true that it usually costs less to start a franchise, you will still have to spend money at the beginning. Besides the registration fee and royalty, you may want to improve the store and rejig the inventory. Therefore, before even applying to any potential franchisor, you must estimate how much these would cost and see if you can afford it.
Of what use is a franchise if its products are no longer needed by consumers? And even if the franchise enjoys some level of patronage, what potential does it have in the next five years, for instance? You can answer these questions quantitatively by considering the number of competitors, local population, and potential consumers and whether it favours you.
If your potential franchisor is a big company, the chances that your franchise will also have to be big are high. In that case, you will be dealing with personnel, staff, and office details, which can be overwhelming if you are inexperienced. Therefore, it’s important that you correctly estimate your capability in this way, as it can directly affect the success of your franchise.
Although this consideration is coming last, it’s one of the most important. While a franchisor’s reputation, size, and public acceptance are definitely factors for success, location is also critical. Locations that bring you close to multiple competitors, for instance, can adversely affect your sales and, in turn, affect the profitability of your franchise.
Franchise Business in Singapore: Regulations and Obligations
Singapore does not have separate laws focusing on franchising. However, the regular company laws apply to both the franchisor and the franchisee. You can operate your franchise as a partnership, sole proprietorship, or limited liability company.
However, while there are no officially promulgated laws specific to franchising in Singapore, a national body, the Franchising and Licensing Association of Singapore (FLA), exists that moderates the business in the country. This body spells out the roles, rights, and obligations of both franchisors and franchisees.
Below are some of the rights and obligations of the two parties in Singapore:
|Must supply the required information for the smooth running of the business.||Must keep to agreements as contained in the documents signed.|
|Eligible for compensation for allowing franchise access to their business platform.||Must select the location they consider best and pay royalties as and when due.|
|Must facilitate all necessary training for the franchise to take off effectively.||Must apply learnt skills and technology required for the smooth operation of the business.|
How to Start a Franchise Business in Singapore?
As with any business, you must begin by doing some feasibility studies, which must include considering the suitability of the business to the location, the relevance of the goods and services rendered, the presence of competitors, and doing some background checks about the franchisor. These pieces of information will help you determine whether it is a venture worthy of your time and resources.
If, from the information gathered, you feel it is a worthy venture, you can formally apply to the franchisor and wait to know their response. A successful application means you will have to go on to pay the registration fees and abide by the conditions stipulated by the parent company.
Singapore has vast opportunities for business due to its safe and secure environment. As a result, many franchisors are willing to take on interested locals and foreigners to expand their businesses. With the information in this article, you have what it takes to try out this business pathway.
Engage a corporate service provider to help incorporate your business in Singapore to get a head start. They would ensure all your paperwork is done accurately and in a short span of time. With them managing the incorporation process along with the statutory requirements your business needs to meet, all you would need to do is concentrate on your business operations and take it to new heights.