Pros And Cons Of Franchising
Penny Haw takes a look at the advantages and disadvantages from a franchisee’s point of view.
Franchising is widely acknowledged as a highly effective business model. It is, however, not without some disadvantages.
- Franchising gives you the independence of small business ownership supported by the advantages of a large business network.
- Sometimes described as “planting a sapling instead of a seed”, investing in a franchise means a great deal of the initial groundwork has already been done. You receive something of a turnkey operation with an established trademark, a tried and tested operating system, trade contacts, and access to support.
- You do not need to know everything about running the business before investing in a franchise. The franchisor you partner with will provide you with a manual, as well as training and support.
- It can be easier to obtain financing for a franchise than an entirely new business, because the brand has a track record.
- Franchises enjoy higher rates of success than start-up businesses. Customers already know the brand, which means you do not have to establish company or brand awareness.
- By investing in a franchise, you invest in an exclusive territory in which to trade. Astute franchisors limit the number of franchises they open in specific areas, too.
- You have access to insights and knowledge of other franchisees in the network.
- Once you have established one successful franchise, you can take advantage of the principles of scalability and open more franchises in the network.
- Franchises have better resale value. This is because independent businesses often rely entirely on the person who owns them to operate. Without that person, the value of the business is uncertain. As a branded business, a franchise has a more predictable resale value.
- Buying a franchise requires initial and ongoing fees, royalties and profit sharing, and it also means entering into a formal agreement with a franchisor.
- Franchise agreements dictate how you run the business. There may be little room for creativity. If you dislike being obliged to work within a set framework, you might find franchising unsuitable.
- Because franchisors have a brand and corporate image to protect, they do not allow shortcuts. This can mean setup costs are higher than they might be for other start-ups. However, breakeven is generally reached sooner in a franchise than in a start-up.
- There can be restrictions on where you operate, the products you sell and the suppliers you allowed to use. You must be prepared to participate in national campaigns.
- Bad service and/or quality by other franchisees could affect your business’s reputation.
- The sale of a franchisee’s business is subject to the approval of the franchisor.
- Amateurish, incompetent or weak franchisors can curb the growth of a franchise brand. The key is to carefully evaluate the business before you invest in it. Consider the company’s track record carefully, and talk to others in the network before making a final decision.