Buying a Franchise – The Pros and the Cons

If you’re considering striking out on your own and buying a business, chances are that you have been told to buy a franchise. It is also possible that there are many who have urged you not to buy a franchise. So should you or shouldn’t you buy a franchise business?

equipment financing for franchisesThis is a tough one as it largely depends on the quality of the franchise that you’re planning to buy into and several other factors. So, we gave created a list of pros and cons of buying a franchise for you, which should help you with your decision.

So, what’s a Franchise Business?

You’d no doubt be familiar with the idea of franchise businesses – McDonald is one, so is Domino’s Pizza, as are Subway, Supercuts, Jiffy Lube. There are thousands of franchises out there. In fact, most companies turn to the franchise model to expand their stores nationwide as well as internationally. Only select companies with a nationwide presence, such as Starbucks and Wal-Mart are not franchise businesses.

Any individual is welcome to buy into a franchise – how much they need to spend depends on whether the franchise is a new or has been around for a long time. If it’s new, the barrier for entry is a lot lower and the company would just want to expand in any way possible. As a franchisee, you will pay the franchise a royalty fee from your sales and will have several other obligations as well.

Next, we discuss why you should consider buying a franchise and why you should avoid doing so. There are good reasons for both.

Pros and Cons of Buying a Franchise

There are many great reasons to buy a franchise—as well as valid reasons for not buying one. First, let’s discuss why buying a franchise is such a great idea.

Buying a Franchise Business – The Pros

  1. You will be buying into a business with a solid track record of success…

When you buy into a franchise such as McDonalds or Subway, you will be buying into a highly successful company with a massive customer base across hundreds of countries. That’s so because these companies have developed a business methodology that works great and delivers huge profits. You can find out more about their track record because all franchises are required to disclose their financial details to prospective franchisees before signing them up.

  1. Your brand is already well known…

Franchises such as Domino’s Pizza or Papa John’s Pizza already have a strong brand which you can benefit from. These companies have established a solid reputation in the market, most people know about them. It helps if the franchise that you’re buying into has a great brand which is recognized by one and all.

  1. You will be given training by the franchise company…

All franchise companies offer training programs to new franchisees to bring them up to speed with the latest ways of doing business. They will be given reference material which they can use as a guide to run their business.

  1. Franchise NH 4You will have access to operational support from the franchise company…

As a franchisee, you will have access to operational support from the franchise on an ongoing basis. All franchise companies have a staff that is dedicated to providing operational assistance to franchisees and to help them run the business. You can call them up every time you need help with something.

  1. The franchise company will help you out with the marketing…

As a franchisee, you won’t have to worry too much about the marketing. This is taken care of by the franchise company, who make tried and tested marketing tools, strategies and techniques available to you. You will be given a well thought out marketing plan, which you’ll have to implement in your area.

  1. You will be given help in choosing the right location…

Are you worried that you may not be able to choose the right location? Your franchise will help you with them. Most franchises have manuals, documentation and trained staff who help you find the best location for the business. They help you cut the costs down and negotiate better with the property sellers.

  1. The franchise company will send a trained staff to help out with the construction…

Your franchise will help you with the design of the layout for your business. They will have architects and contractors among their staff, who would arrive at your location and help you out with the constriction of the store. They will also help with the furniture selection and the equipment purchase.

  1. You will benefit from the buying power of the franchise company…

When you buy into a franchise, you will benefit from their enormous buying power as this helps you to negotiate better deals with suppliers, much more so, than would have been possible had you been an independent operator. You will receive discounts on equipment purchases, supplies, inventory and much more when you’re a part of a franchise.

  1. Buying a franchise is ALMOST Risk Free!

The biggest reason to buy into a franchise is that it is ALMOST a risk free investment.   All businesses will carry a degree of risk, but when you purchase a franchise.  You can ride on the success of an already established business which enjoys great brand recognition. Sure, you must do your due diligence before buying a franchise. As long as you join the right franchise, you’ll know exactly what to expect and are more likely to succeed than to fail.

 

Buying a Franchise Business – Cons

What are the disadvantages of buying into a franchise? Let’s find out.bad credit equipment financing

  1. High Initial Payout.

The franchise fee and start-up cost can be high. This is particularly true when it comes to larger franchises – they have huge initial costs, even more than what it would cost to start your own independent business.

  1. High Royalty Payments.

You’ll be required to pay a percentage of your monthly gross to the franchise. This reduces your profits. The royalty fee to be paid varies from one franchise to another – with some it’s reasonable and with others, it can be quite high.

  1. Marketing/Advertising Fees.

You will be required to pay a fee for the marketing and advertising support offered by the franchisor. Some franchisors waive this off.

  1. No Scope for Creativity or Flexibility.

Most franchises are very particular about not allowing any alterations or additions to their brand. Franchises don’t expect any extra creativity from their franchisees, and expect them to work according to the standards that are required of them. So, as a franchisee, you will have to work according to their standards and may not be required to use much originality while running the business.

  1. Can source only from an approved list of companies.

As a franchisee, you can source your supplies only from a list of suppliers pre-approved by the franchisor. Nothing wrong with this, as this ensures that there is a consistency in the business among all franchisees, but this also means you are not allowed to look for better deals elsewhere.

  1. Hard to get out of a Long-Term Contract.

If you end up joining the wrong franchise, getting out could be difficult as many franchisors require franchisees to sign long term contracts. This means you might well get stuck with the wrong franchise for years.

  1. Your success depends on the performance of the franchise company.

Your success depends on the reputation of the franchise company. So if you join a great franchise with a solid reputation, this shouldn’t be a problem. But if you join a failing franchise, your business will suffer as a consequence.

  1. No guarantee of success.

There are no real guarantees that buying a franchise will get you success. Of course, this is not as risky as starting your own business, but it’s not right to say that buying into a franchise is completely risk free. There is always a risk in starting a business. Your success as a franchisee depends on the effort that you’re willing to put into your business as well the reputation of the franchise.

 Concluding Thoughts…

There are both advantages and disadvantages to buying a franchise. As said earlier, there are no guarantees of success and you won’t be set up for life just because you join the right franchise. A lot depends on how hard you’re willing to work and how well you manage the business. But joining the right franchise does put you at a huge advantage compared to someone who’s starting a new independent business. So it’s important to do your research and ask the right questions before joining a franchise.

 

buying franchise business

Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also NewHorizon.org team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 24+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

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NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

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