This weeks Q&A session focuses on the banking default in Cyprus and franchising
After the recent banking default in Cyprus, I am concerned about the safety of opening a business bank account in Europe. Is the US banking situation safer for entrepreneurs?
There is little doubt that banks in the US pose less risk than banks in Europe. Currently, the Federal Reserve guarantees up to $250,000 in deposits. It was the Federal Reserve’s ability to swiftly respond to crisis that ensured that no depositors, private individual or business, lost money in the worst of the economic crisis between 2008-2009 or after.
Europe’s Central Bank has much less discretion than the Federal Reserve. The weakness in Europe stems from the lack of fiscal integrity in the European Union. There is currently a large riff between Europe’s Northern and Southern countries. The Southern countries require bailouts from the Northern countries because of high levels of debt incurred by the Southern countries. Depositors’ money is at risk because there is no guarantee that Northern countries will be willing or able to continue to bail out their EU neighbors to the south…
There is no clear answer to that question. Below are some pros and cons that are worth bearing in mind as you explore the franchising option, particularly as it relates to restaurants, although generally true as well.
Pros of a franchise
- A franchise comes with it`s own established brand – Buying a good brand will ensure that many like the restaurant before it ever opens.
- Support from the franchisor- Franchisor can provide advertising campaigns, custom software, training and phone and email support.
- Group purchasing – Independent restaurants have less buying power. Groups can qualify for big discounts.
Cons of being a restaurant franchise
- Brand and menu specifications – Sometimes it can be difficult to make common sense changes to a specific restaurant because the franchising contract forces owners to behave a certain way to protect a national brand.
- Fees – The cost of starting a franchise can be much more than starting an independent business. Sometimes the support that comes with starting franchise is simply not worth the set-up fees
In the end, if you prefer a more secure, directed situation, go with a good, well established franchise. You will pretty much know the up and down limits before you start and that can make planning much easier. On the other hand, if you are willing to take bigger risks, feel you want to direct all the elements of your business yourself, and can live with the idea of unlimited upside…or downside, start your own restaurant from scratch!