Franchise Pros and Cons

Date: January 05, 2010

Related Content: Resources Franchises

Advantages and Disadvantages of Franchising

The idea of becoming your own boss can seem pretty appealing, particularly to those toiling away in jobs they find unfulfilling or who have been laid off yet again. These are two of the biggest reasons why increasing numbers of people are looking at whether or not buying a franchise might offer them more satisfaction and stability. But before taking the leap, you need to seriously consider the cons of becoming a franchisee; after all, it's not the pros that will drive you crazy.

But let's first explore the upside of purchasing a franchise. One of the biggest? The reduced risk that comes with buying into a proven business model where all the mistakes have been already been made for you, says Sheila Keefe, a CPA and certified fraud examiner and also principal of Lake Geneva, Wis.-based Access Resource Management, LLC, a consulting company that provides strategic planning and corporate governance expertise to small business clients. Ideally -- emphasis on the word ideally; not all franchises live up to the ideal -- what you're really purchasing when buying a franchise is total business support. There are other advantages, says Keefe:

Franchise Benefits

  • Known costs. When starting your own business, costs can unexpectedly exceed expectations, Keefe explains. With a franchise, you know exactly what costs are going to be.
  • Guidance on location.
  • Guidance on purchasing, and on the quantity and types of goods used.
  • Established relationships with reliable suppliers. And, you'll likely have better pricing, thanks to the franchise's stronger purchasing power.
  • Some franchises provide training and problem-solving assistance. They can help in goal setting and other business-related issues.
  • An already established brand, resulting in a built-in customer base. Some franchises will also provide leads and other sales-related support, like call centers.
  • The assurance that all legal issues have been addressed.

Now for the promised cons. In addition to potentially onerous royalties and high initial investment costs, other downsides can include:

Franchise Problems

  • Some folks aren't temperamentally well suited for franchising, says Keefe. If you're extremely entrepreneurial or creative, you'll likely chafe at the restrictions posed by all but the most hands-off franchise (and even these rarities may prove too restrictive).
  • Typically, you'll have no control over the goods you use and the cost of these goods.
  • There may be restrictions on what other kinds of businesses you can become involved in or operate, as well as limitations on employment in related fields.
  • If you're a trade/craft-oriented franchise, such as plumbing or painting, you may have little say over the jobs you can take or turn down.
  • Possibly higher marketing costs that could have slight value to you at the local level. For example, a Super Bowl ad: You may think it doesn't improve your sales but you may have to pay your share for its cost anyway, says Keefe.
  • Spillover. Bad press created by another franchisee can negatively impact your business.

Still think a franchise might be right for you? Then go to these links for additional information on finding the right franchise and the questions to ask (especially important when it comes to protecting yourself against unscrupulous franchisors more focused on churn than on helping franchisees succeed).

Related Content: Resources | Franchises

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