Before Buying a Franchise, It is Important to Consider the Pros and Cons of Franchising
When contemplating whether or not to start a business, it is important to decide if you want to operate independently or purchase a franchise. There are many advantages and disadvantages to owning a franchise. Franchising is great for anyone who would like to be their own boss, likes quick growth, and is willing to follow a proven system. But franchising isn’t for everyone.
As a franchisee, you are responsible for providing the franchisor with the fees to purchase the business. Many franchisees put their life savings into the business. Franchise consultants, who offer prospective franchisees advice to determine if franchising is right for them, suggest not even trying to buy a franchise without having a good amount of liquid cash.
Advantages to Franchising
There are various franchise pros and cons. Advantages include:
- A Proven System: A franchise increases your chances of business success because you work under a proven system. Franchises offer consumers consistency from a familiar brand.
- Help Getting Started: Before even opening the business, the franchise offers support. This support comes in the form of site selection, design, construction, financing, training, and a grand-opening program.
- Continued Support: The support continues after the business is open in the form of training, national and regional advertising, operating procedures, operational assistance, ongoing supervision and management support, increased spending power, and access to bulk purchasing.
- A Fast-Track to a New Field: You can enter an entirely new industry without having to go back to school. The franchisor will teach you how to do everything and tell you everything that you need to know.
- Lower Failure Rate: Generally speaking, franchises have a lower failure rate when compared to solo businesses. This is due to the fact that franchises are already proven to be successful and have a working concept.
- Brand Recognition: As a recognizable brand, franchisees have a built-in fan base that new independent businesses simply don't have.
- Vendor Relationships: An advantage to investing in a franchise business is the fact that the franchisor likely has relationships with vendors. This allows you as a franchise owner to not have to worry about where to get supplies, especially if you own a retail franchise store.
- No Prior Experience Necessary: Since the franchisor provides you with great support and training, you likely don’t need a ton - or any - prior business experience. The franchisor will give you all the tools to run the franchise business properly.
Disadvantages to Franchising
There are also disadvantages to franchising. These include:
- Limited Control: As a franchise business owner, you have limited control. The franchisor is the one who provides the working system, so the franchisee has to follow it.
- Costs: Opening a franchise is not a cheap endeavor. On top of the initial franchise fees and royalty fees, the franchisee is responsible for coming up with all of the capital to open the business and managing overhead.
- Potential Leadership Changes: There is always the possibility that the franchise can be acquired and new leadership will move in.
- Lack of Privacy: Being a franchisee also comes with a lack of financial privacy. The franchise agreement will likely come with a stipulation that the franchisor can oversee the entire financial ecosystem of the business.
- Reputation Control: All it takes is one bad franchisee to upset the applecart and the whole franchise system can be tarnished.
- Difficult to Resell: Once your time as a franchise owner with a brand is over, you may to sell it to someone else or potentially sell it back to the franchisor as part of your exit strategy. But it may be difficult to find someone to buy your franchise store or business because the franchisor has to approve it.
Before diving into the world of franchising, there are various questions that you need to ask yourself:
Am I Willing to Take the Risk of Owning a Franchise?
Investing in a franchise can be a long and costly process. You can also fail.
What's Driving Me to Own a Franchise?
Look deep within yourself to understand why you want to own a franchise. Make sure you’re doing it for the right reasons and have the skills to make the business work.
Can I Afford a Franchise?
As a franchisee, all of the capital to own and operate the business comes out of your pocket. You need to be in a good financial place to start a franchise business.
Do I Have the Right Personality for Franchise Ownership?
A franchise business owner should be a people-person. Franchisees have to manage staff, deal with customers and vendors, and get the message out about the business. A meek and shy person will find this difficult.
When is the Best Time to Invest in a Franchise?
The time to invest in a franchise really depends on the individual. Franchising comes with a built-in fan base, name-brand recognition, and the chance to be your own boss. On the other hand, being a franchisee comes with great financial risk, little financial privacy, and limited control. Before jumping into franchising, ask yourself serious questions about why you want to do it and seek the advice of a franchise consultant.
Franchise consultants connect franchisors with entrepreneurs who want to open a franchise. Based on your skills and background, the consultant will connect with franchisors who have companies that align with what you can offer the franchise business. Since the franchise consultant gets a commission from the franchisor, their advice is free for you. You’ll also know if you are cut out for franchise ownership based on working with the consultant.
If you are cut out for owning a franchise, you’ll be invited to a franchisor's discovery day. Here, you can ask franchisors questions and get all the information you need to know before owning a franchise. The due diligence that comes with speaking with a franchise consultant and attending a discovery day makes buying franchises less risky than starting a business from scratch. If after the franchisee validation process you believe this brand is a good investment, then owning a franchise business could be for you!
Franchise Advantages and Disadvantages
As with any venture in life, franchise ownership comes with advantages and disadvantages. Pros of franchising include being able to follow a proven system, having great support and training, lower failure rate than independent business, and not necessarily needing to have experience to succeed. On the other hand, franchise ownership comes with limited control over the business; the business could be difficult to resell; and leadership changes due to acquisitions can shake up the system. Speaking with a franchise consultant will help you get a better understanding of specific brands and if you’re a serious candidate for franchise ownership.