For some of us the thought of starting our own business from scratch scares us to death. In the same breath however the thought of ‘working for the man’ forever scares us even more. For those of us that fit in between those two ideals perhaps purchasing a franchise could be for you, however like anything in life, before you go and dive in, you need to weigh up the positives and negatives before you go ahead and dive in.
Pros Of Buying A Franchise
1) Proven Business Model – When you purchase a franchise you are buying a business that is either already up and running or at the very least that is tried and tested under similar circumstances in another location. This helps to ease the risk of your entry into the marketplace as you don’t have to re-invent the wheel.
2) Existing Guidelines And Policies – You will receive a comprehensive manual on how to successfully operate and run your business when you purchase your franchise. This is basically a step by step blueprint on what has caused other businesses in the franchise to achieve long lasting success. This means that you will not have to worry about creating everything from scratch but you can take the attitude of ‘based on history if I do ABC then I will get result DEF’ which can be good for your peace of mind and your sanity!
3) External Support Systems – Depending on the way in which the franchise is structured, you will have access to support networks provided by the corporate office which may include things like professional legal and human resources personnel and in some cases these services will be included as part of your royalties.
4) Networking and Mentoring – You will be able to network and collaborate with other franchisees sharing the common goal of growing the business as a whole. Should you choose the right franchise to purchase these people who have been in the game for a long time will be a fantastic resource to tackle problems facing all of the business units in their respective territories.
5) Centralized Marketing – Think of KFC advertising which does not occur to promote a particular business in the network of stores but rather all stores benefit through the growth and promotion of the brand itself. This allows you to focus on the running and maintenance of the business as opposed to growing it which depending on the industry may grow naturally.
6) Finance Approval – Most of us do not have the necessary funds lying around required to get a franchise up and running. The good news is that many franchises have had their business model pre-approved by lenders which makes your task of gaining finance approval all the more simple.
Cons Of Buying A Franchise
1) Freedom And Flexibility – When you sign your franchise agreement you are agreeing to play by their rules meaning that if you come up with a new idea on how to grow or expand your business you are likely to going to have to get approval from the franchise owner. If your idea does not fit with their strategic plan of where they want to take the business then you may be prevented from putting your idea into practice. Sometimes this can lead to frustration as not reporting to a higher authority is one of the main reasons you might have chosen to start your own business in the first place.
2) Up Front Costs – Unlike starting up your own business from nothing, you will be receiving all of the pros listed above at the offset. Whilst this is great as you don’t have to do it all yourself, this comes at a price – after all the person selling the franchise needs to make their money somehow. The costs of purchasing a franchise can run into hundreds of thousands of dollars and in some cases over a million.
3) Ongoing Royalties – In order for you to continue to receive marketing and other ongoing support from the corporate office you are going to have to return a percentage of your turnover back. This is a difficult concept for many to grasp, in particular after spending a significant amount of money to purchase the business up front. There are a whole raft of associated issues that come along with royalty payments, in particular how they are best spent. The most simple parallel that I can draw is a strata arrangement at a block of units. Here all the tenants compete for the communal monies to be spent on what best serves their own individual interests.
4) The Actions Of Other Franchisee – Sometimes another owner of the franchise can do something so outrageous that it damages the reputation of the brand itself. This may drive customers away from your own franchise and you might not have done anything to deserve this and there may not be anything that you can do to stop it. Imagine if one KFC in your area was in the news for employing underage children for less than the minimum wage. If you owned a KFC franchise in the town next door your business is likely to suffer at the hands of someone else’s actions.
So we can see that like anything buying a franchise has some positive and negative points that are going to influence your decision to dive in and purchase one. You will need to consider what it best for you taking into account your own personal medium to long term goals. Is this something that you would like to do full time or will it be another cog in your portfolio. My advice is if it is the latter then you should not have too much hesitation to go on the look for a franchise to buy. But keep in mind not all franchises were created equal.
Each franchise brand itself will have both pros and cons including both the market and available territory that you are looking to secure. So be cautious and seek independent advice if it is that right choice for you.
Have you owned a franchise of your own? What was your experience? Would you recommend this business to anyone reading this article?
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(price as of Nov 2, 2013)