Pros and Cons of Franchise Businesses
For the individual owner, there are
definite advantages to franchising, some of which are outlined in
the list below.
Pros of Franchise Businesses
- Well-known trademark,
either regionally or nationally, and its cumulative goodwill -
saving the business owner the cost of creating and advertising a
name that customers already recognize.
- Established business framework -
minimizing the startup problems and guesswork involved in starting
a new business.
- Well-tested sources of supply and service
- saving time and trouble in finding suppliers of needed products
- Ongoing sales and marketing assistance -
franchisors have proven, existing, and successful systems of
advertising and marketing.
- Financial assistance - banks and similar
lending institutions are willing to lend money to a business that
has the backing of a successful franchisor. Most franchisors have
direct financial assistance or help in finding adequate sources of
- Reduction of risk - you are buying into an
established concept so the risk of failure is lower.
- Ongoing research and development - most
franchisors constantly research and look into vital information
such as competition, product demand, seasonal variations, and
- Site selection and business support - the
franchisor helps with selecting a suitable site location, building
construction design and supervision, employee training, and operational support.
- Proven operating methods and procedures
for creating and selling the product.
- Standard quality, uniformity, and
desirability of the franchisor's product or service.
- Collective buying power and centralized
purchasing system - franchises may be able to purchase supplies at
a reduced cost since the franchisor can purchase in bulk and pass
the savings to the franchisees.
Furthermore, with franchising
expansion seems to come more naturally. Operating a successful
franchise may quickly lead to building a second and then a third
business, and so on. In fact, some franchisees own all businesses of a particular franchise
in an entire geographical area. Fortunes have been built this way.
the advantages to franchising, buying or starting a franchise
business is not for everyone. Some of the disadvantages to franchising
are discussed in the list below.
Cons of Franchise Businesses
- Loss of control and freedom - since the
franchisor's standards have to be adhered to, a franchisee may
have limited scope for individual personal initiative.
royalties could be as high as 10% (or more) of revenues - this
amount could determine whether you business is profitable or
- The initial
franchise fee can be quite substantial. It
can range anywhere from $4,000 to $20,000 and, in
some cases, up to $50,000!
fees - there is usually a fee for advertising on a regional or national basis.
If the franchisor does not make the best use of your advertising dollars, this could be a
waste of money.
- Required Signage -
most franchisors have a developed sign package that the franchisee is required to purchase.
This can be very expensive for the small business owner.
franchisor's problems are also your problems - for example, you
could have a serious issue if there was a conflict between the
franchisor and a major supplier.
In summary, despite the disadvantages
of owning a franchise business, it generally offers
real advantages with considerably reduced risks over going it on
your own. All franchises are not created equal and research and due diligence should be done
before starting or buying any franchise business. Franchising cannot guarantee a profit.
You, as the business owner, are ultimately responsible for the success or failure of the
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