Pros and Cons of Buying a Franchise
What You Should Consider Before Buying a Franchise
Buying a franchise is often an option considered by people who ultimately want to own their own business. Increasingly, corporate employees experiencing downsizing or unfavorable work conditions may consider buying a franchise as a viable career option.
According to the International Franchise Association, franchise businesses have a history of creating jobs faster than other businesses and the national average.
This trend isn't expected to change any time soon. This positive economic outlook for franchises is enough to make people consider owning a franchise business, but is the franchise option right for you?
Before you take the leap, consider this overview of the pros and cons of buying a franchise.
Pros of Buying a Franchise
There are plenty of reasons that franchises are attractive to current and potential small business owners. Consider the following pros of owning a franchise business:
- It's a turnkey system. The franchise system is a proven system for operating the business and generating profits. If you are willing to pay a little more, but get to profitability quicker, then a turnkey franchise should be considered. If your skills are weak in sales & marketing or operations then a turnkey franchise may be best.
- You get franchise support. Small business owners often have very little support or lack a support team with business acumen. Buying a franchise offers the opportunity to share your challenges with other entrepreneurs who are facing or have faced the same problems. As franchise companies state, you're in business for yourself, but not by yourself.
- You benefit from a brand name. The more established franchises provide a market awareness & brand name to franchisees. This is likely to attract more customers quicker. Thus, it can amount to great savings in customer acquisition costs and allow for more time in the operation of the business.
- You receive access to lower inventory prices. The collective buying power of a franchise group allows for lower costs in purchasing inventory and equipment. Independent businesses usually have less bargaining power with suppliers.
- Recruiting staff may be easier. Finding good employees is a critical success factor for many independent small business owners. A franchise business with a recognized name will generally have greater recruiting pull than an unknown business entity.
Cons of Buying a Franchise
Though buying a franchise has its advantages for the small business owner, it doesn't come without its disadvantages.
- There can be high start-up costs. Buying a brand name franchise is often beyond the financial capability of many potential business owners. An independent business may be more realistic financially if the owner is willing to focus on building a strong business operation.
- You will always owe royalty payments. Each and every year franchisees are required to make royalty payments in return for support in operations and advertising.
- You have less privacy and less freedom. Franchisees are required to share financial information and conform to uniform operating procedures.
- Inadequate support is always a risk. Some franchisers may not provide all the necessary resources for the success of your particular location. The franchiser may not have the ability to provide market or field support. Owners can become reactive and expect the head office to solve all the problems. In your own business, the only person you count on is you. Talk to other franchisees for feedback about the level of support they receive.
The Bottom Line
Buying a franchise works best for individuals who work well in a team environment and have limited business and industry background. For others, the road to "true" entrepreneurship could represent the ideal path to business ownership. Take the time to consider your options to decide whether buying a franchise is right for you.
Edited by Alyssa Gregory