It is often assumed that buying a franchise is an easy way to make money when you want to start your own business. While this may be the case, not all franchisors are created equally, and not everyone is cut out to be a franchisee. So what are the pros and cons of having a franchise, and what are the pros and cons that a prospective franchisee can expect from this process?
Increased success rate
When you buy a franchise, you buy an existing brand with a proven track record. Their products are already in the market; they have been tested thoroughly and have all the necessary systems in place. This eliminates some of the risk and makes it more likely that you, too, will succeed. Statistics show that franchisees have a much better chance of success than those who start their own businesses from scratch.
One of the reasons for this is that as a franchisee, you are automatically in a better position to attract customers because your brand is well known with an existing track record firmly in place. This means that there is already a pool of existing customers for you to tap into, and you will not have to convert as many customers or sell as hard as you would if you were starting an unknown brand. This lessened risk makes franchises very attractive to entrepreneurs who are not so keen on putting it all on the line to be business owners.
A big plus of owning a franchise is you get a lot of initial support when setting up your business. You will also enjoy ongoing guidance and assistance in the daily running of your business. Similarly, when you buy a franchise, you get all the hardware, stock, and training required to get your business off the ground. Often this comes at a reduced cost because the franchiser will have better deals in place with suppliers for bulk buying, which you will also benefit from. This really eliminates a lot of stress as you join an existing network of suppliers and are party to tried and tested methods and training.
Little room for change
One of the biggest frustrations for franchisees is that you are required to follow the instructions of the franchisee and you don't have much freedom to choose things for yourself. This can be very annoying for entrepreneurial thinkers who like to get creative and test new ways of doing business. One of the reasons why franchisors are often so stringent is because they have the tough job of building the umbrella brand, which requires consistency in both the branding and the systems. So they will likely be very prescriptive when it comes to how you run your business.
The initial prices of buying a franchise can be very expensive, especially if it is a well-known franchise. You will need your own money to invest, and most of the time, you will also need more money from a lender of some kind. Other than the start-up costs, the franchise fees you pay to the company every month are one of the biggest costs you'll have to pay every month. Most of the time, this is based on a percentage of how much money your business turns over every month.
It is very risky to buy a business that isn't well known. Just because a business offers franchises doesn't mean that the company you buy will be successful. There are a lot of franchisors out there, and everyone wants to own one. So make sure you understand the business on offer and are confident that it is a considered investment.
The bottom line
Buying a franchise is a great way to own your own business, but there are pros and cons with going this route. Make sure you do your due diligence and understand exactly who you are getting into business with. But if you are the right person to be a franchisee and choose the right company, it can be a really strategic way to succeed as an entrepreneur.