What Are Some Advantages and Disadvantages of Owning a Franchise?
If you’re reading this, you’re considering buying a franchise business. Before you do, you want to be fully acquainted with the pros and cons of owning a franchise. That’s a good move, a wise decision. I wouldn’t dream of starting a business without doing my research, and neither should you.
So, what are the advantages of owning a franchise that will set your pulse racing and get your entrepreneurial juices flowing? And what are the cons of franchising that will bring you back down to earth and keep your feet on the ground?
What are the primary advantages of owning a franchise?
A ready-made business model, with a track record of success. That’s why many entrepreneurs are happy to invest big into starting a franchise as business owners. But let’s unpack this, and discuss the advantages of having a franchise in a little more detail:
You don’t have to start from scratch
Buying into a franchise means you don’t have to start from scratch. This saves a lot of time, money, and effort. Purchasing a franchise is much quicker than starting a new business. It’s like having a head start.
You’re buying into a tried and tested business model
The franchise system is a tried and tested business model, and so too will be the franchise operation that you invest in. The company has been able to franchise its business because of the success it has. Buy the right franchise business, and you could also become franchise owners in a business that has proved itself to be recession-proof.
Ready-made business plan
If you have ever composed a business plan before, you’ll understand just how time-consuming and frustrating it can be. Now, I’m not suggesting that you shouldn’t have a business plan, but when buying into a franchise business you’ll benefit from a ready-made business plan, into which you can drop your own details.
One of the biggest problems that new business owners face is early-stage cash flow. It takes time to get your name out and for people to recognize your brand.
One of the biggest advantages of having a franchise is that you are trading off an already established brand. This means you should have a much faster ramp-up time, and your business and cash flow should build rapidly.
Help with marketing
Here’s another huge advantage. The franchisor knows what marketing works. They’ve been marketing their business for a long time. Decades, perhaps.
You’ll get help to market your business when it’s just starting out, and you’ll be provided with marketing materials to help you grow your business after this, too.
Training and resources
Are you worried about being new franchise owners and not knowing the ropes? There really is no need to be. Here’s the thing. The franchisor wants you to be successful: if you’re successful, so are they. They’ll provide training and ongoing support to ensure you are ready to start and develop your business. That’s a massive plus, especially if this is your first business, or you are starting a business in a sector in which you have little experience.
Lower startup costs
It almost goes without saying that your startup costs will be lower than starting a business from scratch. You’ll benefit from the franchisor’s buying power, too.
Higher access to financing
Because you are purchasing a franchise in an already established business, you should find that banks will be more willing to lend you startup funds. You’ll also find that many franchisors can help to arrange financing for you ─ access to financing that you simply won’t have otherwise.
The sum of all the above? Lower risks, and greater potential for outstanding success.
Before you get carried away, though, it’s only right to make you aware of the cons of franchising.
What are the cons of franchising?
Owning any business is not all a bed of roses. You’ll need to work hard to make your franchise business a success, and there are disadvantages of franchising. Here are the disadvantages of owning a franchise business.
Restrictions on your business
When you own your own business, you can run it exactly how you want. You can operate where you want. You have the freedom to buy raw materials from where you want and can develop products and services you think will sell.
As a franchisee, you will have to operate within restrictions set by the franchisor. Such restrictions include franchise location and territory, and the products and services you can sell (forget about creating your own, though most franchisors will listen to your ideas).
The most important document you will need to sign as a new franchisee is the franchise agreement. This and other contractual agreements describe the terms of the arrangement. Break them and you could lose your franchise business.
Franchise specific pay to play fees
While the cost of starting a franchise business is lower, you will have specific ‘pay to play’ franchise fees. An example is the initial fee ─ like a charge to sit down at the franchisor’s table. Look on these fees this way - you’re playing with the franchisor’s ball, on their pitch, in their stadium. It’s your ticket price.
Ongoing royalty fees
Of course, all the help, training, and ongoing support isn’t free. The franchisor will put a lot of effort into ensuring your success. In return, they will expect a cut of your profits or revenue. These ongoing royalty fees will be made plain to you upfront, though (they are detailed in the franchise agreement, for example) so you can factor this into your business planning.
Poor ongoing support
Here’s a big potential disadvantage. Not all franchisors offer the same level of support. Some only give that initial training and not much else after. How do you know what support you’ll be getting?
Speak to the franchisor, and meet with existing franchisees. And get a franchise consultant on your side.
Weighing the pros and cons of franchise opportunities
There’s much to think about, isn’t there? Those advantages of franchising are tantalizing and tempting. But the disadvantages are concerning. Therefore, it is always best to seek professional advice – to see how much benefit those advantages could be to you, and how you can mitigate and minimize the disadvantages.
Do you want to know if franchising is the best choice for you? Take our franchise aptitude assessment.