Pros and Cons of Franchising
You have an entrepreneurial spirit, but you’re worried about the potential failure.
That’s where the allure of franchising comes in. When you purchase a franchise, you gain the guidance of a successful, widely-known company while still being able to run your own business. If you’ve been thinking about buying a franchise, you should know the ups and downs associated with the venture.
1. There’s power in the name.
If you’re buying a big-name franchise, you’ll benefit from brand recognition. Opening a franchise in a new area brings a well-known name to consumers who are excited and already trusting of the brand.
2. Are you new to running a business? No worries.
Franchise companies provide training programs for new franchisees. You may be flown out to their headquarters or be provided with training materials at home. The support doesn’t stop after you open your doors, either.
3. You aren’t alone.
It takes a village to start a franchise. The company has employees that are trained to assist you with everything about starting your franchise. There will be franchisor-provided staff to help with construction, marketing, and any obstacles that arise later on.
4. Franchises are low-risk startups.
Compared to an entirely original startup, franchises offer lower risk and a more reliable return on your investment (especially if they’re smaller franchises).
1. Franchises may be low-risk, but they aren’t easy to start.
Although your sales look good on paper, there are plenty of costs that come with a franchise. Your franchise fee usually ranges from tens to hundreds of thousands, and that’s money you usually have to pony up yourself. While some franchises will help with financing, many leave you on your own.
2. You surrender some of your profits.
Franchisees have to pay a certain percentage of their annual profits to the parent company. The precise amount will depend on the business itself; most will charge 4-6% of your annual sales, but the royalty fee can go all the way up to 25%. If you’re lucky, you may not have a royalty fee at all.
3. There’s little room for individuality.
If you’re a free spirit, a franchise may not be the best option for you. You’ll have to play by the franchise’s operations, buy supplies from the designated vendors, and adhere to their rulebook.
4. You’re limited even after you leave the franchise.
Pay attention to your franchising agreement. Nearly all of them contain a non-competition clause which prevents you from starting your own business in the same field as your previous franchise. You’re stuck with these terms for years after the expiration of your contract.