The decision whether to purchase a franchise is a major one. If you are considering the purchase of a franchise, you should take the time to evaluate the particular franchise business and the franchise company carefully. You should also weigh the advantages and disadvantages of franchising in general. Some of the advantages and disadvantages to consider in making your decision whether to purchase a franchise are:
Franchise Advantages
Be Your Own Boss. Even those individuals with little or no business experience can usually learn how to operate the franchise business relatively quickly with the help of the franchisor and become his or her “own boss.”
A Proven Business Model. An established franchise system can offer franchisees a successful business model for operating the business that has the benefit of the franchisor’s own learning curve. You will be taught the business model during an initial training program and be provided an operations manual for reference as you operate the business.
Established Market. An established, successful franchise has built-in goodwill, visibility and credibility in the marketplace. That means from the day you open your business, you will have brand name recognition with prospective customers.
Purchasing Power. Franchisees can benefit from cost-saving purchase arrangements negotiated by the franchisor for the franchise system and effective nationwide marketing programs.
Ongoing Support. Franchisors typically offer some level of ongoing guidance and assistance in operating the franchise business. Other franchisees operating the same type of business can also be a good source of support.
New Products and Services. A reputable franchisor will work to develop new products and services and other improvements and refinements to the system over the life of the franchise, so your business will grow as the franchise system grows.
Franchise Disadvantages
Loss of Control. After you learn your business, you may want more independence from the franchisor than your Franchise Agreement and the franchisor’s system-wide policies and procedures will allow.
Franchisor’s Failures Are Your Failures. Your business may suffer if your franchisor employs poor business practices, poor judgment, or poor management.
Elaborate System of Oversight by Franchisor. You may grow weary of the obligations of performance under your franchise agreement, such as strict accountability and reporting requirements, audits and inspections.
Sharing of Revenue. Royalties and advertising fees are typically paid to the franchisor “off the top” on gross revenue whether or not you’re making a profit.
Strict Compliance with the System. Franchisors can demand strict compliance with the four corners of the franchise contract and its operations manual. If you fail to operate “by the book,” the franchisor can terminate your right to operate the franchise business. You could lose everything – all your time, money, and goodwill built up in the business.
Potential for Non-Compliance. The franchise laws are designed to eliminate fraud and misrepresentation in franchising and to provide you with enough information to make an informed decision about the purchase of the franchise opportunity. However, franchise laws designed to protect franchise investors cannot always prevent a franchisee from receiving and relying on information that is misleading or inaccurate.
How do you make your decision? You first need to assess whether based on your personality traits you will be satisfied in working within the constraints of a franchise system.
A future blog will discuss what steps you should take before purchasing a particular franchise once you have made the decision that franchising is right for you.