What are the advantages of franchising?
How about the disadvantages of franchising?
Starting any new business, be it a franchise or otherwise, is not a decision you want to make lightly.
You need to weigh up the pros and the cons – the advantages and disadvantages – of entrepreneurship.
However, if you do feel that establishing your own business is a good idea, you may want to consider owning a franchise.
Franchising can be an excellent idea. After all, you can be your own boss, and yet, you can still avoid the risk – a risk which is highly significant – that comes when you start up your own business from scratch.
While investing in a franchise can, indeed, be a cheaper alternative to starting your own business from scratch, depending on the franchise, it’s likely that there’s still going to be a significant financial investment that’s called for.
What are the Advantages of Franchising?
1 You can work in a brand-new industry and yet, there’s no prior experience necessary
When you invest in a franchise, you can enter into work that you don’t need to have prior experience of.
Franchisors (franchise brands) provide thorough and extensive support together with training to all franchisees.
When you join an established brand that has likely been in operation for years, you’ll gain instantaneous knowledge, you’ll gain experience, and you’ll gain industry secrets that otherwise you’d have to learn first-hand and with sheer hard work over the years to come.
Essentially, when you invest in a franchise, you are forgoing a lot of the trial and error.
When you own a franchise, you can tap into others’ experience.
As such, you greatly increase your own chance of success.
2 Lower risk
An investment in a franchise makes for a far more secure form of investment than starting up a brand new business.
That’s because, not only do you invest in an established brand that people instantly recognize, but you also have the backing and support of a corporation that has been successful for a long time.
Such a corporation have business models in place.
Business models that have been thoroughly tested and proven to be successful.
What’s more, due to this history of business success, obtaining a business loan is generally far easier than getting a business loan for a business that runs independently.
3 Brand recognition – loyal customer base
It can be difficult to become established when you’re starting up a brand new, independent business.
However, when you invest in a franchise, you don’t have to do nearly as much marketing as you would if you were to set up an unknown business.
You already have a loyal customer base established, and you can quickly access a pool of employees that already want to work for your franchise’s brand.
Basically, by investing in a franchise, you jump onto an accelerated pathway – a pathway that takes you to profitability.
4 You have collective buying power
When you become part of a franchise system, you gain further benefits from the franchisor’s relationships with suppliers, which is already deeply rooted.
Moreover, materials will be less costly.
Why?
Your franchisor has a collective buying power.
5 Franchisor support
The majority of franchisors prioritize providing support to their franchisees, particularly so when the franchisee is at the beginner stages.
Support comes in the form of pre-opening assistance.
As a franchisee, you get help with the selection of your operating site, you get help with design, with construction, with financing your operations, with training, and you’ll also get programs to help with your grand opening day.
Some franchises even offer their franchisors loans as well as other types of financial assistance.
6 Be your own boss
For many, if not most wannabe business owners, the main draw of it, other than to make a healthy return on investment is to be your own boss.
Perhaps the attraction is because you’ll be able to create your own work schedule – a schedule that will be far more appealing than when working for someone else.
Maybe you wish to spend a lot of time at home working.
There’s a saying in the franchising world, and it goes like this:
“While you are in business for yourself, you’re never going to be by yourself.“
What are the Disadvantages of Franchising?
1 Potentially high initial investment
Investing in a franchise, at least at the start, when you buy into the franchise, can be a very costly affair.
Take McDonald’s, for example…
The total investment required will cost you anything between $1 and $2.2 million U.S.
On top of that, you’re expected to have a liquid capital of no less than $750,000 U.S.
That’s going some!
Notwithstanding, there are many franchises available to investment, and you don’t have to look at the big names out there.
There’s a franchise investment for you, regardless of the size of your budget.
During your research, pay close attention to something called “monthly royalty fees.”
Some franchisors, though certainly not all, charge a monthly royalty fee to franchisees.
This fee amounts to what is typically 4 to 6 percent of monthly gross sales revenue.
Obviously, that’s going be damaging to your potential for profit.
2 Limitations on creativity
All franchises come with a “predetermined” brand.
As such, there are always going to be limitations on creativity for all franchisees.
What’s more, there are going to be restrictions in place on place of operation, on the product lines you can sell, on the suppliers you utilize.
3 Your financial information is privy to corporate
There’s continuous collection of financial information by franchisors on franchisees.
This is done to make improvements to overall business model. It’s also done as a way of auditing royalty payments.
As such, the franchisee does not have much privacy with regards to business finances.
Further Franchising Realities that are Oftentimes Overlooked
Here, we have listed additional “items” that are often overlooked by potential franchisees.
These are not pros as such, nor are they disadvantages.
Expenses involved in marketing and advertising
There are stipulations made by many franchisors in franchise contracts that the franchisee is responsible for payment of marketing and advertising their business.
Read over the contract most thoroughly to be clear about the conditions.
No permanency of the franchising contract
The contract you have with your chosen franchisor is not set in stone for eternity – it is not permanent.
When your contract has run its term, there’s no law that says your franchisor has to renew.
Of course, that works both ways. There’s no law that says you have to renew, either.
Group work
Buying into a franchise represents a group endeavor.
First, there’s you. There’s your franchisor. Then, there’s also all other franchisees that work under the same brand that you do.
The community can prove to be empowering. It can be collaborative in nature. It can be highly supportive. But, likewise, it can be challenging.
Keep in mind that failures and huge mistakes that are made by another franchisee can risk the reputation of your entire business.
That said, prior to making any financial investment, it’s good policy to talk with others that have already made the investment.
Get a feel for the community you’re potentially going to be buying into.