The Advantages and Disadvantages of Franchising

You know you want to run your own company.  The trouble is finding the start up costs and making it past the first five years.  Often the saying is that if you can survive the first five years your business will succeed. 

Franchises can be an easier way to get a business set up.  Like all business opportunities franchises will have advantages and disadvantages.  To help you understand the franchise business we have both listed below.

Advantages of Franchising:

1. The business you will open is based on a proven idea.  You can also check on how successful the other franchises are before you commit to the idea.

2. The brand name and trademarks will be recognised not only by you, but your consumers.  This means you benefit from the franchisor’s advertising and promotional campaigns.

3. The franchisor will give you support with training, setup, and the entire business format.

4. You will have exclusive rights in your territory with most franchises, i.e. another franchise of the same brand cannot open near you.

5. Financing the business might be easier based on the established business model.

6. You will have network support with communication, sharing ideas, and support from the other franchises.

7. Lastly there is a relationship with suppliers that has been established.  You get to take advantage of this.

Disadvantages of Franchising:

1. Costs can be a lot higher than you expect.  You will have the upfront fee that is owed to the franchisor.  You will also have royalties that are paid out over the years.  These fees can be extremely high.

2. There are restrictions within the agreement of the franchise on how you can run the business. You will not be able to make certain changes to suit the local market.  So if something is not working, you may not be able to change it.

3. If a franchisor goes out of business so unfortunately do you.

4. Though there are restrictions on the agreement, sometimes other franchisees give the brand a bad name, which will hurt your abilities to make money.

    

5. It can be very difficult to sell the franchise if you are trying to get out of the business. The franchisor actually has to approve of the sale.

    

6. Your profits will be shared with the franchisor.  In other words all your profits will be split.  If you do not make enough you could end up losing any revenue you gain to the franchisor in the royalties.

As you can see there are two sides to the franchise business. The disadvantages are somewhat in your control, however.  You have the option of finding a business that works for you.  In other words if one franchise offers high start up costs you may want to continue looking until you find the one franchise that has lower costs.  Of course, this is a bit difficult if you are looking in a specific industry.  You will have to weigh all the advantages and disadvantages.