In a franchise business, the franchisor provides a developed way of doing business, ongoing guidance, systems and assistance in return for periodic payment of fees and/or purchases. The main purpose of business is to earn profits and business expansion, creating the own niche in the industry. The high ROIs are always welcomed along with other business perks.
Buying a franchise can be a viable alternative to starting your own business. Listed below are some advantages and disadvantages of buying a franchise.
Advantages
- Franchises offer the independence of small business ownership supported by the benefits of a big business network.
- You don't necessarily need business experience to run a franchise. Franchisors usually provide the training you need to operate their business model.
- Franchises have a higher rate of success than start-up businesses.
- You may find it easier to secure finance for a franchise. It may cost less to buy a franchise than start your own business of the same type.
- Franchises often have an established reputation and image, proven management and work practices, access to national advertising and ongoing support.
The combination of these factors will have several positive effects on unit level performance.
Disadvantages
- Buying a franchise means entering into a formal agreement with your franchisor.
- Franchise agreements dictate how you run the business, so there may be little room for creativity.
- There are usually restrictions on where you operate, the products you sell and the suppliers you use.
- Bad performances by other franchisees may affect your franchise's reputation.
- Buying a franchise means ongoing sharing of profit with the franchisor.
- Franchisors do not have to renew an agreement at the end of the franchise term.
Franchising is seen by many as a simple way to go into business for the first time. But franchising is no guarantee of success and the same principles of good management - such as informed decision-making, hard work, time management, having enough money and serving your customers well - still apply.
Be cautious when buying into a franchise if you have to develop the market and the brand in your designated area. Make sure your investment generates healthy returns and a capital gain when you sell.
