Buying a franchise can be an overwhelming experience, especially for the first time. Such association needs a careful consideration of a number of issues, and too often eager franchise buyer jumps in too soon and makes mistakes along the way.
But it doesn’t have to be that way. A lot of information is available for people to take informed decisions. You could talk to other franchise owners and see what they have to say about their business. You can, and must, also meet the leadership at the headquarters. This will give you a sense of the business you are about to buy.
Pros of Franchise Businesses
Established Brand and Customer Base. By far, the biggest advantage of buying into an established franchise is the strength of the brand and loyalty of its customers.
Marketing Support. Franchises often have the support of a national campaign, as well as prepared marketing materials for a local campaign.
Reputable Suppliers. Franchisors often have established relationships with their suppliers who also provide raw material support to franchisees.
Business Support. A franchising saying is You’re in business for yourself, but not by yourself. This means your franchise enterprise gets complete support and attentional from the business owner.
Training. Some of the better (and more expensive) franchise operations offer management and technical training.
Financial Assistance. Some franchisors provide loans and other assistance to help franchisees.
Access to Proprietary Methods. There’s no need to reinvent the wheel as franchisees get access to all the trade related knowledge.
Ongoing Research and Development, New Products. Franchisees can stick to improving their operations and let the franchisor spend the time and money developing new products.
The Boss is You. As with owning any business, you are your own boss in the management of your franchise.
Reduced Risk. For all of these reasons, starting a franchise of an established brand often has less risk than starting a business from nothing.
Cons of Franchise Businesses
Initial Payout (Franchise Fee and Start-up Costs). Some of the bigger franchise operations can involve a very large initial cost, often more than what it would cost to start your own business.
Royalty Payments. For as long as you are a franchisee, you will have to pay some percentage of the monthly gross back to the franchisor, reducing your profit potential.
Marketing/Advertising Fees. To receive the wonderful marketing support from the franchisor, franchisees must pay these fees, according to some contracts.
Limited Creativity/Flexibility. Most franchise contracts have very explicit standards, allowing little or no alterations or additions to the brand, stifling any creativity on the part of the franchisee. You must use franchisor system, follow its rules.
Sole Sourcing. Some franchise contracts stipulate that franchisors must buy supplies only from an approved list of suppliers, possibly at a higher cost.
Locked into Operation by Long-Term Contract. If you don’t do as much research as you should have and bind yourself with a wrong franchise, you may be stuck for many years.
Dependent on Franchisor Success. The reputation of your franchise is only as good as that of the franchisor. Therefore any difficulties that the franchisor encounters will have a direct impact on you.
False Expectations. Opening a franchise rather than starting your own business offers no guarantees of success. You still need to be a sharp businessperson to make it work.
Risk. There’s always risk in starting any new business.
Overall, the negatives of buying a franchise are fewer than the benefits. But the business proposition must be carefully weighed. By doing so, you can get the best of a franchise business can offer.