For many budding business owners or those considering investing in a restaurant, there’s always the initial deliberation of whether it’s better to buy a franchise or start your own.
Another question that also often gets asked is: What exactly is the difference between franchising and opening a new branch as part of a chain? There are several aspects to differentiate the two. The primary difference lies in who runs or manages the business. In a franchise, a third party or franchisee runs the business on behalf of the company. Meanwhile, a branch is run by the company itself. Let’s take a closer look.
Because it is run by a third party, it follows that the profit of the franchise is split between the franchise and the company. The percentage of shares depends on the deal between the two parties. For a branch, on the other hand, all profit goes to the company.
While the company still dictates overall quality standards that branches have to adhere to, there remains a difference in terms of management. In a franchise, quality is only monitored by the company. Should they find that the franchise has not been complying with their standards or rules (whether in production of products or service, or maintenance of the space), the company can revoke the franchise. Meanwhile, in a branch, the company directly maintains the quality.
Employees and salaries
In a franchise, since franchisees run the business, its employees have no relation to the company. In a chain, each branch’s employees are also directly hired by the company. Their salaries are also part of the company payroll.
It also follows that since the company is still running the chain branches, the business policies are set by the company. This is different from a franchise where the franchisee is able to set their own business policies.