Pros and Cons of Franchise

Starting a new business is what you don’t decide overnight. Considering the pros and cons of a franchise is an endeavor that you will research and have countless conversations and questions. One of the best options that you may consider during your research is franchise ownership.

Franchising is an exciting opportunity because it offers the chance to be your boss without taking any risk of starting a business from scratch. Franchising offers several advantages for business owners, but there are also some disadvantages that you should be aware of before purchasing a franchise.

Purchasing a franchise can be cheaper than starting a business from scratch; it still needs a significant monetary investment, that’s why you must enter into your franchise purchase well-informed. Read up, talk with your friends and family, make a list, speak with some business owners and franchise owners, but most importantly, know that this is not a decision to make in a hurry. Always be true to your instinct and what will be right for you, your goals, and your mindset.

A franchise system is a legal and commercial relationship between the owner of a company and an individual starting a branch of that business using the business’s trademark logos. The franchise has to sell the product or service that the franchisor supplies.

Pros of franchise

Following are the pros of a franchise:

Find a new career, a new industry with no experience

Buying a franchise allows a franchisee to work in a field where you don’t have to gain any previous work experience. Franchise brands, also known as franchisors, offer franchisees support and training to educate them and help them understand their company’s business model. Having a franchise that already has established a brand operating for years, you will have some previous knowledge, experience, and industry secrets that you would otherwise have had to learn and throughout your career have to suffer from many trial and error processes. Buying a franchise allows you to tap into the previous owner’s collective years-worth of the first-hand experience, increasing your chances of success.

Skipping the initial stages of hard-work

The most difficult and challenging part of starting a new business arguably comes in the startup stage. You have to write down all business plans, do market research, create a minimum viable product, test all products, and then scale (if testing goes well). Buying a franchise helps you skip all this struggle. In a franchise system, everything has been tested and proven to work.  Now it is up to you how to apply their method to your market.

Low risk of bankrupt

Investing in franchises is a more secure investment than starting a new business. Because they have the support and back of a large, established corporation, these corporations have business models that have already been tested, sometimes in different markets across the country. They have already proven themselves to be effective from others. Their history has proven successful; getting a franchise business loan is very easy than getting a loan to start an independent new business. The banks will also know that investing in a franchise is safer than investing in a new company that has not yet had the opportunity to build up a history of success.

Trusted customer and brand knowledge

The difficult part of starting any new business is finding your first customers. This is one of the biggest reasons, so many people turn to franchises. When you own a franchise, you bypass a lot of the work that goes into marketing and branding a new and unknown business. Investing in a franchise gives you access to an established, trusted customer base and employees as well. Buying an established and well-known brand can give you a path to profitability by bringing in customers and employees.

You do not have to deal with the manager at all

 You will not have to tell franchisees what to do the way you can with employees. Franchisees are all independent businesses. They have totally different goals from others, which can easily conflict and even lead to legal trouble. For example, Franchisors make money by collecting a percentage of sales as a royalty for giving the franchisee permission to use their brand name and operating system. Franchisees make money from the physical outlet’s profits. Anything that increases sales, but not benefits, will create conflicts between the franchisor and the franchisee. If a franchisee wants to offer customers promotional coupons, franchisees may likely object. Coupons increase sales but do not always provide profits.

Connections with other people

When you own a franchise and become part of that franchise system, you will have benefit from your franchisor’s established deep-rooted relationships with other suppliers. In this way, you will get materials less expensive because of the franchisor’s good connections with other people.

Having franchisor’s support

Most franchisors support their franchisees, especially when they start their new business by offering them pre-opening assistance like physical site selection, design, construction, financing, training, grand-opening of a franchise, etc. The help does not limit here. Some franchisors also give loans and other forms of financial support to their franchisees.

You can get guidance from a franchisor and learn from his mistakes like when he have opened up branches of the same franchise. If you open an independent small business, you can get advice, but you will have to take tips with a franchise.

Work like a boss

Buying a franchise offers you the chance to be your boss. You will have a more flexible schedule for yourself, having more autonomy over your career, you can even choose to work from home, whenever you want. You will own a business while having a support system and advice from the franchisor. In franchising, there is a saying that you are in business for yourself, not by yourself.

Cons of Franchise

Following are the cons of a franchise:

The first payment could be high

Depending on the franchise you want to choose and invest in, it is the initial investment. It can be hefty, mostly for big-name franchises. An assortment of franchises is affordable for any budget. Watch out for the monthly royalty fees that some franchisors charge to their franchisees. The royalty fee is between 4 – 6 percent of your every gross sales revenue and marks a reduction from your profit. Not all franchises charge royalty fees. The cleaning service franchise has no royalty fees. The leather and plastic franchise, on the other hand, offers a flat-rate royalty system that doesn’t require franchisees to report on finances.

Fewer chances of your creativity

Franchises already have a maintained brand. They are creative enough for franchisees looking to explore, alter, or make additions to their company’s business model or brand. There are also restrictions on which you can operate, what products you have to sell, and the suppliers you can use for your business model.

You have to share your financial information with other members

Franchisors have to share their financial information with other franchisees to improve their business model and audit royalty payments. As a result, franchisees have little privacy in their business’ finances.

On the other hand, the best franchise companies share a deal of financial information back with their franchisees. This allows them to know their performance with the rest of the franchise system. This could be a considerable advantage for franchisees to help and improve their financial performance and business profit.

Contractual Agreement

When you decided to buy a franchise, you will undoubtedly sign a contract such as a Franchise Disclosure Agreement, which has all the things you can and cannot do as a franchisee.  If you break one of those, many requirements and you could lose your business altogether. Decide that you do not want to be in this business anymore, and you will find the process is to close up shop much more complicated than if you didn’t sign a contract with a national franchise. The decision of buying a franchise contain many problems like other business who have just started. First, you will have to need a passion for your new business, plan your business, make the team, and organize tools that will help you stay organized, finance, etc.

It is all upon you whether you live with cons or want to enjoy a franchise’s pros.

Some thoughts on franchising

Before finalizing your decision about buying a franchise, ask your family, because being the owner takes a lot more time and energy than you think. Your family will be affected the most by your workload.

You will also want to consult with some other experts to make final preparations for buying a franchise. You want a franchise attorney to help you understand all the in and out of the franchise contract. And you’ll want to consult and take help from developing a business plan, both for yourself and for your financing when you need it.

If you are a true entrepreneur, then buying a franchise probably is not for you. You will have to start your own business to be free to develop your concepts, brands, systems, etc.