The Pros and Cons of Franchising
Buying a franchise could be a great option for some and the worst option for others. The entrepreneur must be aware of the factors that will influence whether he buys a franchise or not. Much of these depend on the entrepreneur himself, his personality and what his reasons are for wanting to own his own business.
“Franchising is about being in your own business, but not alone in your own business.”
Reduced risk – Franchises traditionally have a much lower failure rate than other start-up businesses. This is because the entrepreneur is buying a business concept/system where most of the kinks have already been ironed out by someone else.
Easier financing – Because a strong franchise has a well-established and proven track record, a bank may be more inclined to provide the finance.
A complete package – The guesswork associated with starting a business is taken care of. The total package can include trademarks, easy access to an established product; a proven marketing method; equipment; inventory; etc.
Strength in numbers – A franchisee has the buying power of the entire network, which can help with getting better priced product and competing with larger national chains.
Business processes – Many franchisors provide their franchisees with various proven systems including financial and accounting systems; on-going training and support; research and development; sales and marketing assistance; planning and forecasting; inventory management; etc. They’ll show the entrepreneur the techniques that have made the business successful and help them use these tools to develop their own business.
Site selection assistance – Some franchisors may help with site selection, making sure that the business is located in an area where it can thrive.
Feasibility Studies – Assistance with feasibility studies and best practice models is also offered by most Franchisors.
Advertising and promotion – The franchisee not only benefits from a franchisor’s national/regional ad and promotional campaigns, but they may also develop in-store point-of-sale materials designed to drive customers through the business.
Product/Service Innovation – Introducing a new product that flops costs precious time and money. Franchisors bear this risk by developing new products and testing them in their company-owned stores or with other franchisees willing to test them.
Peer support – As a franchisee, you receive on-going support not only from your franchisor, but also from your fellow franchisees. This can be locally, regionally, through an online support network or just by picking up the phone. Virtual support is offered via the internet.
The down side
Lack of control – The essence of a franchise – buying and operating a proven concept – can make the entrepreneur feel more like a manager than his own boss. This may be difficult for those who are more entrepreneurial and find it hard to conform to someone else’s system.
Cost – It can take a good deal of cash to open and operate a franchise. Upfront costs can be significant and on-going fees can have a major impact on cash flow.
Close ties – Just as a franchisor’s reputation can benefit the individual business, if the parent company comes upon hard times, the individual franchise may also suffer because of how closely they are tied in.
The entrepreneur is committed – A franchise agreement is binding and can be quite restrictive.
The business owner is locked into certain business practices, fees and even the look of the business. Whether the entrepreneur likes it or not, they must adhere to these guidelines.
Selling the franchise – There is less control when the franchisee decides to sell, as there are procedures that must be followed, including getting the franchisor’s approval of the buyer. Lease conditions and tenure need also to be considered.
Although franchise ownership can provide a proven business model/system with instant brand awareness, it doesn’t always bring about instant wealth. For that kind of success, business owners need to start a franchise that’s in demand with consumers, have a good location, have strong people skills, be willing to put in the hours and learn everything about the company.