Pros And Cons Of Buying A Franchise

This month we’re taking a closer look at franchising as a way to start your own business. For many, it’s the easiest start to being their own boss. But like every opportunity, there pros and cons. So let’s look at the good and the bad to buying a franchise.

PRO: YOU DON’T START FROM SCRATCH

Most franchises are well-known brands with their own communities and customers that franchise owners just need to tap into and grow. It means you have more revenue sooner than if you started something from scratch.

Franchises also have established processes and systems that maximize your return. So rather than testing a new system, a franchise owner can reduce his or her learning curve and start with a successful system on day one. This improves profitability sooner.

CON: FEES CAN BE HEFTY

Just because you don’t do the marketing, doesn’t mean you don’t pay for it. In fact, franchises require their owners to contribute to the company’s overall marketing and advertising, which may or may not directly impact your direct market.

Startup costs are also expensive, especially for more established franchises. In addition, there are ongoing costs, like franchise fees that are a fixed percentage of every dollar earned. There are also fees associated with purchasing your raw materials directly from the company, which may be cheaper than you could get on your own, but that’s not guaranteed. So be sure you understand the fees associated with starting and running a franchise before you start.

PRO: FRANCHISES HAVE A HIGHER SUCCESS RATE

Because you’re buying into an established brand and proven system of successful processes, franchise owners have almost an 80% success rate, rather than a 70% failure rate found in independent small businesses.

CON: LIMITED FLEXIBILITY

This may actually be a pro for some. Franchises are looking for owners who will run established businesses, not create their own. So owners have very little say in the raw goods, their training programs or even the look and feel for their stores. Many of the decisions are made at headquarters and dictated to owners to execute.

PRO: EASIER RECRUITMENT

Like any business, a franchise will live or die by their staff and finding good employees is easier with a well-known brand. While ultimately you must possess strong management and leadership skills, starting with a wide base will increase your chances of getting the best employees in the market.

CON: COMPETITION IS EVERYWHERE

While many franchises limit the number of locations in a certain area, owners could find nearby location competing for their same customers. With limited flexibility, owners have little opportunity to address this competition.

Starting a franchise takes a lot of hard work, but if you go into it knowing these pros and cons to buying a franchise, you can better prepare yourself, your family and your finances to be successful. For more information, be sure to check out our recorded webinar, Franchising: What You Need to Know.

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