THE PROS AND CONS OF FRANCHISING

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THE PROS AND CONS OF FRANCHISING

Pro 3: Franchises are less risky than independent businesses.

If you buy a franchise, you already know that the product is successful. It has brand recognition, for one thing. Assuming the franchise is in a good location and the brand continues to attract customers you should have a pretty solid business on your hands. If you want to be a small business owner but you don’t want to risk a lot of time and capital on a venture that could fail, you might be drawn to franchising.

Pro 4: It’s easier to get advice about a franchise.

If you’re considering becoming a franchisee, you can talk to other people who have done the same or read about their experiences online. You can get guidance and learn from the mistakes of others who have opened up branches of the same franchise. Of course, if you open an independent small business you can get general advice, but you’ll have access to more tailored tips with a franchise.

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Con 1: Franchises can come with high start-up costs.

Starting a franchise might involve higher start-up costs than you would incur if you started an independent small business. If you’re trying to start a small business without taking out a hefty loan or putting a lot of your own capital on the line, becoming a franchisee might not be your best option. Before you commit to one form of business or the other, it’s worth doing a cost comparison.

Con 2: You have less flexibility with a franchise.

When you become a franchisee you have to abide by the rules of the franchisor and keep to the terms of your licensing agreement. You can’t shake up things like the products you carry, the decor of your store and the uniforms the staff wear. With a franchise, you have less scope for innovation and for personalizing your business.

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Con 3: Franchise fees can really add up. 

The Pros and Cons of Franchising

Franchisors don’t let you take their logo and run with it. You’ll owe fees to the business from which you buy the franchise. A portion of each month’s profits will leave your coffers and go to the franchisor, per your licensing agreement. Those fees can add up, which is why it’s a good idea to enlist the services of a lawyer to help you get a good deal on your franchise. If you’re fee-averse, you might decide to forgo a franchise altogether.

Con 4: The fate of your business isn’t entirely in your control.

Franchisees benefit from the brand recognition of the company whose franchise they buy, but they’re also vulnerable if the public turns against that brand. Health scares at another franchise branch, corporate scandals and more can all leave franchisees vulnerable and put their profits in jeopardy.

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Bottom Line

Becoming a franchisee is a good fit for some and a bad idea for others. Before you commit, it’s a good idea to weigh the pros and cons, do your research and seek legal advice. Different franchisors may offer radically different terms and conditions, so it pays to comparison shop.

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