A franchise can be an excellent business investment in many ways but it has disadvantages as well. They do come with a significant amount of risk on the part of both the franchisor as well as the franchisee. There are various advantages to running a franchise. Such as already having existing marketing tools and effective business methods in place from day one. Something which any new business owner could benefit from.
However, the flip side is that if you don’t have the financial means to set up your own storefront you’re going to be borrowing money from someone else. Which takes away much of your autonomy for growing the business for years to come.
Choosing to franchise your business is a major decision. It’s important to understand both the risks and rewards so you can make an informed decision. In this guide, we’ll outline some of the more challenging hurdles that franchisors face. So you can better understand if franchising may be the right move for you.
Disadvantages of Franchise
After extensive research, we’ve handpicked the major disadvantages of franchising. Let’s check them out!
A franchise gives the business owner more control over the business and the running of it. But there are restrictions in place to ensure that mistakes aren’t made too easily. Despite being able to make some of their own important decisions without consulting a franchisor; most franchisees find this is not enough freedom for them. They find themselves feeling frustrated as they’re limited with many procedures that don’t seem relevant to their lives or businesses.
As a general rule, the majority of a franchise’s business and assets are controlled by the franchisor. This can be frustrating for most franchisees. For example, the franchisor may have policies related to advertising or accounting practices. That may differ from what an individual franchisee would choose because of their location. As well as customers and budget for that matter.
A franchise is a great option for small business owners who don’t have the capital necessary to start their own company. While franchises like McDonald’s can inspire much confidence in potential franchisees. Some may still be hesitant if they are unable or have no plans of being able to come up with the cash for this upfront cost. This can be a great investment over time. Since most businesses that run as fast-food chains do make hefty profits. But it could become burdensome if your budget isn’t in line with what you need to invest initially.
Chances are good you’ll still have to come up with some money to finance the purchase. Even though you may choose to buy into a low-cost franchise. That’s just the way business goes sometimes. However, don’t forget that there are several financing options available to help spread out. As well as to reduce the initial cost of your venture.
Buying a franchise not only means you’ll have to shell out some money upfront. There are other things one takes into account before making a purchase. Like the individual who is franchising the business for example. Personal relationships play a big role in whether or not your enterprise will be successful. It’s something to consider when making this type of decision. Also, think about why people shop and what appeals to them on a personal level. Everything from price and quality to environment work into play because let’s face it. Business is really all about satisfying people’s needs as they see fit!
Choosing the right location is so important to your company’s success. Look at it this way. You could have the best franchise idea in the world. But if you don’t pick a viable location right off the back. Then your customers will be walking too far to visit your business regularly. That is why it’s vital you not only do market research but also weigh up all potential options first before deciding on a location that is actually going to help your business succeed in the long run.
Start-up costs are just the beginning when it comes to running your franchise. There are additional expenses you’ll have to factor in when looking at a potential opportunity. These additional costs should be outlined in the franchise agreement once you’re a legal partner with the franchisor. These include operating expenses, financing charges, and more. To protect yourself as a new entrepreneur, make sure to read over these costs. So that you know exactly what it takes to run for office before making a decision.
Possibility of Conflict
One of the benefits of purchasing a franchise is getting to work closely with other people who have your best interests at heart. After all, without franchising, there’s no franchise. But it can be difficult dealing with other people and maintaining healthy relationships. While a franchise agreement spells out the expectations of both parties. Neither party has a lot of recourse in terms of enforcing the terms set forth within the said agreement should one or both parties violate its specifics.
The franchisor needs to establish roles and make everything in their contract extremely clear before entering into business with a franchisee. They must also make sure that they approach prospective franchisees at the right time if they want to avoid burning out on running the business. The proper management team can help you build a holistic relationship that is beneficial in all aspects of your project.
As an entrepreneur, you’re especially careful to keep your business operations and strategy firmly under wraps. You want your trade secrets covered, so other businesses don’t rip you off to the same degree that once necessitated the need for patents. Basically, in a franchise model, teams are very open about what works for them – kind of going back to the sharing and open exchange of information that early civilizations engaged in across borders and seas.
The franchisor informs you of the process for starting up a new team. They provide you information about how your task should be carried out as well as contacts to get in contact with if any questions or concerns arise throughout the process. You still run the risk occasionally of competitors gaining access to this information.
Complicated Business Exit
One major factor that plays into why it could be quite difficult to sell a franchise is because of the terms negotiated during the original purchase. Any initial agreements that were made in the past are going to apply to any future buyers, and neither party can negotiate these terms without consulting each other first, which complicates things further.
It can be difficult to sell a business that is still new. When starting out, you are not able to fully determine what the expectations are regarding price and valuation. This makes it harder for you to sell your business once it has off the ground.
Advantages of Franchise
We’ve listed some of the good sides of franchising. Let’s check them out!
Industry Experience Isn’t Entirely Compulsory
In a lot of cases, when you want to start up your own business, you need a certain amount of industry experience beforehand. However, purchasing a franchise is different because it means buying into an already existing company where, in the best situations, some training is provided that will help people who are new to working in that industry. Because we’re talking about purchasing a franchise, this job would allow you to dip your toes in the water while exploring a career path within an industry that you’re interested in without having to take on the pressure and demands that come with starting your own business from scratch which is just one more perk for those who are unfamiliar with the ins and outs of owning their own home-based business!
Brand Awareness and Existing Customer Base
Starting a business can be a daunting task, particularly if you plan to go at it alone. Many of us desire the experience of working for ourselves and being in charge, but what happens when there is no one around with whom we can network or learn from? Enter franchising. With a franchise, our approachability will increase because we will be able to reach out to other businesses in our own genre that is already established! This will bring us many more clients and customers who already know about us by name.
Lower Risk Compared to Starting from the Scratch
Franchising is like choosing your favorite teacher or mentor to work with. Having someone who has already been successful at running their own business could be the benefit you need compared to starting up on your own and facing all of the challenges that come with making every decision along the way.
Reliable Support and Backing
Franchisees enjoy a series of support and industrial training from their franchisors to help them build a solid foundation for their business. Not only this but franchisors use their years of experience to arm you with the fundamental know-how needed to successfully run your own business which can be invaluable if you’re still new to this but have high hopes.
Unlimited Opportunities for Business Expansion
There are so many different benefits that come along with buying into a franchise, such as having ample opportunities to grow and expand while also prospering from the franchisor’s prior investment in advertising and experience. You can easily grow your business with additional locations and customers. The more branches you have, the larger your profits will grow. You might also find demand for your offerings in lots of places since people already associate your brand with high-quality products or services.
And that wraps up what you need to know about the disadvantages of a franchise. Purchasing a franchise can be a good way to go when starting up your own business. The information in our article covers some of the key motives behind purchasing a franchise, as well as some of its advantages and drawbacks.