Franchising is one of the most effective ways of business development. It is a great way for existing companies that have already achieved success to expand their business further. Thus, a franchise is often the best opportunity for aspiring entrepreneurs to start a business. It is much easier to acquire and run a franchise than create and develop a new business from the ground up. However, it is important to understand the advantages and disadvantages of franchising to ensure that this is the right decision for you.
Both the franchisor and the franchisee can benefit from this kind of business relationship, if everyone understands all aspects of the cooperation and agrees with it. Below you’ll see some upsides and downsides of purchasing a franchise.
Benefits and Advantages of Buying a Franchise
The benefits of franchising are as follows:
By owning a franchise business you automatically acquire the right to use the brand’s unique trademark. Entrepreneurs get the opportunity to start a business under a credible and well-known brand name. It means that you’ll have an existing customer base that is already familiar with the products or services that you will provide. Franchisees don’t have to worry about attracting and retaining clients as the franchisor’s trademark usually seals the deal.
Franchisors typically share success strategies and give business instructions to their franchisees. This is much easier and less risky than making your own way. After all, the franchisor is interested in the success of all participants of its network, and helps them to develop successfully and make profit.
No Prior Experience Necessary
In most cases potential franchisees are not required to have prior experience in a particular business field. Franchisors appreciate ambition and enthusiasm more than anything else. That means that entrepreneurs of various backgrounds and skill sets have a chance to choose a franchise in preferred industry and become business owners.
Like this any other business, managing a franchise can be challenging, especially if you’re a first time franchisee. You need help in the beginning. Franchisors often support and assist new partners along the whole way of setting up a franchise. They offer training as well. You’re not alone in this journey, there is the franchisor and a team of experts that will help not only with franchise launch, but also with marketing materials, technical equipment, customer retention and recruitment programs.
A franchise can generate a rather sizable revenue, which means that a franchisee’s income can also be pretty high. Typically, more recognizable and experienced companies offer greater financial prospects, so it’s better to explore the options wisely and select the one that suits you the most.
Disadvantages of Buying a Franchise
There are also some disadvantages of franchising that must be considered. They include:
Limited Creative Freedom
At the early stages of franchise development franchisees are monitored. The franchisor exercises quite strict control over services and goods, advertising, and business processes. All franchisees have to adhere to certain rules and standards established by the franchisor. So, in some cases the franchisee may be limited in the management of their franchise, as they have to work and cooperate in this matter with the parent company’s guidelines.
Acquiring a franchise can be a rather pricey venture. The initial investments can reach millions, depending on the brand. There is also a lump-sum fee, service fees, and monthly royalties that a franchisee must cover. There exist associated expenses, like rent, equipment, employee salaries, supplies, insurance that should be taken into account. Therefore, potential franchisees must be financially prepared to pay for all costs that are expected to appear.
The success of the franchisee is linked with the success and reputation of the franchisor and its credibility. The whole network has to uphold the brand’s standards and image. Otherwise, the company will lose customers’ trust and loyalty. It can result in money loss or even bankruptcy. It is a big responsibility, so make sure you’re up for it.
The franchise agreement is usually concluded for a long period. That means that it is impossible to quickly exit the business, if it’s not what you’ve expected. Franchisees do not have the luxury to try this or that business, and if it does not suit them, quit. They have to see it through or go through legal disputes. On average, the duration of a franchise agreement is 10 years.
Little or No Support
Every franchisor provides various levels of support. It is better to learn what the brand is offering in terms of support and training beforehand. Otherwise, you might end up with a company that does not invest efforts into the franchisee’s success. It is hard to navigate a franchise business without proper training and assistance along the way.
All in all, franchising is a promising path. Acquiring a franchise is a serious step, and it is necessary to analyze both pros and cons before embarking on this journey. In this article we have outlined some main benefits and drawbacks of franchising, so you can make an informed decision and decide whether a franchise is a good fit for you.
There are a lot of franchise options to explore and consider. It is crucial to determine your own goals and interests to find the best franchise opportunity for you.