Should I Buy a Franchise? What are the Pros and Cons?
If you want to become an entrepreneur and have sufficient funding, but you're not very interested in building your business from scratch, you may want to consider buying into a franchise.
When you become a franchisee, you will be buying into a business that is already a success, and you will have several advantages that we will explore in detail below. But there are also several disadvantages that you need to consider before taking the leap.
What are the Pros of Buying a Franchise?
You have a ready business
While it may be a little bit more expensive than starting from scratch, the franchise system is a time-tested method for business operations and profit generation. You have the advantage of getting a turnkey business with everything in place.
Experts from Business Queensland say that it is an advantage to buy a franchise because “it offers the independence of small business ownership supported by the benefits of a big business network”.
As a new business owner, therefore, you do not need to worry about having a good product or service, because the owners of the franchise will have already done the hard work of coming up with great ideas on how to push whatever they're selling.
A franchise offers the independence of small business ownership supported by the benefits of a big business network.
Marketing the business
Depending on the franchise you buy into, you could get one that will offer you advertising and marketing support. The company could be giving you advertising and marketing material to ensure brand consistency. However, be prepared to compromise quite a bit because the terms and conditions on this may be very stringent.
Finding a franchise loan can help you to get started. Max Funding franchise loan experts believe this benefits all potential franchisees, stating, “a franchise loan can be the stepping stone to your personal success. When franchise acquisition fees are high it can help to have a loan to get you started, with the established business able to return revenue thereafter”.
When you start a business on your own, you will not have the advantage of having network support as a franchise owner will. Remember, it is in the best interest of the franchise company that you succeed, and they will do all they can to assist you in your business. Having collective buying power will also lower your inventory.
Strong brand name association
If the franchise you buy into has a strong market presence, your business will benefit immediately. The strong name will mean that you do not need to worry about creating brand awareness because of the strong brand association. In order to have a strong brand name, you must focus on being consistent with your product. You need to add a campaign for the franchised business in order for that to be heard. You will not even have a problem attracting employees because everyone wants to be associated with a strong brand.
If the franchise you buy into has a strong market presence, your business will benefit immediately.
Cons of Buying a Franchise
High initial cost
It is not cheap or easy to buy into a franchise, and you will require quite a bit of financing get in. Some franchise companies also insist on a minimum net worth, cash liquidity, good credit scores among others. Finding the right funding advice can help you overcome the high-cost barrier of franchise ownership.
Mandatory royalty payments
Franchise owners are expected to make royalty payments which cater for operational support and marketing. The payment will impact your bottom line.
Lack of flexibility and freedom
The franchise company will require you to conform to its terms and conditions. As a result, you cannot run the business as you wish; something that most business owners cherish. Sometimes the business owner can become lax, or not have the motivation to innovate, because directions come from the franchise company. This laxity may hinder an entrepreneur’s personal development, and they may find that the business operates on a horizontal trajectory.
Inadequate support from the franchise company (franchisor)
Depending on your location, the franchise company may not wish, or may not be able, to invest heavily into supporting you. In this case, the franchise holder can become frustrated, and this could lead to problems with the franchise company.
According to the experts at Metro Bookkeeping, finding the right support is one of the most undervalued aspects of buying a franchise, saying: “Through providing financial support, systems and processes, it’s clear that success comes down to more than revenue in and out. It depends on being surrounded with the help you need right when you need it.”
The franchise company will require you to conform to its terms and conditions.
Before buying into a franchise, do thorough research, speak to other franchise holders and ensure that you understand all the terms and conditions of the franchise company. Entering into contractual agreements without understanding could be very expensive for you, and you may find that you are not able to sustain the business.
Blog post by guest contributor Ben Philp