Thinking of buying a franchise? Read this first
When looking to start up a small business many people look towards the franchise idea as an easy way to get going. Well, it’s true that a franchise can be a good thing but there are a lot of things to take into consideration before signing on the dotted line. Below are what I consider to be the three main pros and cons of buying a franchise.
The pro points for buying a franchise
You are buying into a proven system.
The franchisor has taken many years to come up with a product or service that works and that can be systemised for use by anyone. You shouldn’t underestimate how important systems and processes are in any business and the fact that a franchise has them all laid out for you can be a massive help. The fact that there is also someone there to ask questions of or seek assistance from can also be a great comfort in those early days.
You know there is a market for the product.
Sounds simple but many people who start a small business on their own don’t do the market research and find that they end up with a product that doesn’t sell because no-one wants it. If a franchise has been set up yo know that product/service has a market that you can be confident of tapping into.
You will benefit from the association of the company name.
Many people buy on confidence – they want the assurance that they’re getting the quality they expect and are not going to get ripped off. They get this confidence from buying from a household name, or at least from somewhere that they have heard of. Also, when it comes to raw materials and marketing you will have a big organisation behind you to take advantage of.
The negative aspects of buying a franchise
Initial and ongoing costs.
You will have to pay for a franchise license, to allow you to use the name and the system developed by the franchisor. For some established franchises this can be eye-wateringly large. In addition you may also have to rent or buy suitable property. Once you have the franchise up and running you will probably have to pay some of your profits back to the franchisor on a monthly basis. Sometimes this is a fixed fee, other times it is a straight percentage of the profit you make. There are pros and cons to both types of system but the bottom line is it’s still money you made that is going to the franchisor.
You are not your own boss.
The franchise system will have been developed to maximise profit and so to ensure you do that the franchisor will most likely require you to use it quite rigidly and enforcement of the system use will probably be laid down in the agreement documents. While this can be beneficial at the start there may come a time when your entrepreneurial mind wants to develop things and this can lead to frustration.
The franchisor will want to do everything it can to protect its time, money and reputation. The result is that the agreement will be heavily biased in favor of the franchisor. This could mean that if you’re not performing to the required standard they may impose additional restrictions on you or, in the worst case, take control of your business. Franchise agreements may also restrict you from conducting business of a similar nature for a period after the franchise agreement has expired which may limit your future business dealings too.
If you start a franchise and it goes well you will be full of praise for the system and will never need to refer back to the legal agreements; if it goes badly and recrimination sets in it can get very messy. There is no guarantee that a franchise will work but it can make it easier for people starting out in a small business. Fundamentally, the success or otherwise of a franchise depends very much on the business owner.