If you are considering business ownership but are hesitant to venture out on your own, you may
want to consider becoming a franchisee, or franchise owner. Becoming a business owner can be an
intimidating process, but when you purchase a franchise, you get a team of support, which includes
marketing assistance, HR tools, and training. Having others who are committed to your success as a
business owner and who are willing and able to help when you run into problems is just one of the
many advantages to franchise ownership.
Advantages of Franchises
1.
Higher rate of business success
Perhaps the number one reason people become franchise owners is because franchises have a
higher likelihood of succeeding than do traditional start-up businesses. In fact, according to the
U.S. Department of Commerce, 95% of franchsies are still in business after five
years. Franchisors (the companies who sell or grant franchises to individuals) evaluate each
prospective franchisee (individual franchise owners) and invest in those they think will thrive as
franchise owners for their company. They look for specific skills, experience, motivation,
financial capacity and more to choose people who will be able to afford the franchise, follow the
business operational model, and become successful.
2.
Established brand identity
One of the key advantages of operating a franchise is the ability to give consumers a brand
they know, quality they trust, and a consistency they have come to expect. Purchasing a franchise
means purchasing the reputation of the brand, an established customer base, and a set of products
or services that have been successfully tested in communities. While new business start-ups must
work at building a reputation and generating awareness of the product or service they offer,
franchises are often preceded by their reputation and can make an immediate impact.
3.
The dirty work is done
Perhaps the most difficult thing new business owners face when opening a business of their own
is the burden of starting from scratch. The tasks of starting a business can be lengthy and
expensive. In a franchise system, however, the work has already been done to develop a product
or service, identify and reach a target market, build a reputation, and create a replicable,
business model. While many new business owners spend the first year (or longer!) testing products,
sales tactics and marketing avenues, franchise owners already know exactly what works and how to
effectively reach their target audience.
4.
Business support
Business owners who start their own business take on a great deal of responsibility: they must
market to new customers, provide products and services to existing customers, hire employees, and
train those employees to do their jobs properly. In other words, new business owners must be sales
representatives, accountants, human resource managers, marketing experts, and more. That is a lot
of responsibility! While some individuals may thrive in the multiple roles business owners must
take on, others need support in some or all of the aspects of business ownership. Franchisees get
the support they need in the form of training and even on-site assistance. In addition, most
franchisors provide human resources tools, specialized software, marketing materials, and other
valuable resources that independent business owners must find or develop for themselves.
5.
Easier to finance
If you are looking to start a business with less than perfect credit and need to apply for a
business loan, the established history of a franchise may help you get your loan. Because new
business start-ups are extremely risky, banks are often hesitant to hand out loans without a
history of business management and credit management in your past. Prospective franchisees applying
for a business loan have the advantage of a tested product or service, a successful business model,
and a core of support from the franchisor. Banks know that franchises have a higher likelihood of
success than other new businesses; as a result, it is often easier to secure a business loan for a
franchise than for a business start-up.
Disadvantages of franchises
Does owning a franchise seem too good to be true? Although there are many advantages to owning
a franchise, there are downsides as well. While these disadvantages may seem minor to some, they
may turn others away from the notion of franchise ownership entirely. Read on to learn the
negatives of franchise ownership and decide if it is the path for you.
1.
Factors beyond your control
The value of a franchise lies in the value of the brand and the brand's reputation. When you
purchase a franchise, you must take into account the reputation of the parent company and other
branches of the franchise. If, over time, that reputation is damaged by factors beyond your
control, the results on your business can be catastrophic. And because your franchise agreement is
a long-term agreement, getting out of that franchise system may be more difficult than you
thought.
2.
High costs
Many people who pursue franchise ownership do so because they believe the costs associated
with franchises will be less than those of a traditional start-up business. And for some
franchises, that is true; for many others, however, the costs can soar when franchise fees, capital
requirements, marketing fees, royalties and other fees add up. In fact, one of the reasons that new
franchises fail is insufficient funding and a lack of working capital. There are hundreds of
reputable, low-cost franchises, but you must know what to look for and be smart from the very
beginning.
3.
Restrictions on business
If you are going into business to be independent, creative, and entrepreneurial, franchise
ownership may not be right for you. Franchises are based on previously-developed,
successfully-tested business ideas and plans. Most franchisors have strict regulations on how
individual franchises may operate, and deviations are rarely allowed. Franchise owners, for
example, must sell a specific product or service and advertise with specific marketing materials
and slogans. While this may appeal to business owners who are eager for structure and support,
others may find this too regimented for their individual business style.
4.
Reduced profits
One of the greatest appeals of business ownership is that you benefit personally from your
hard work, and many people seek entrepreneurship as a way to increase their earnings and have
greater control over their financial destiny. Franchise ownership is actually a middle step
between the financial freedom of business ownership and the rigid pay structure of other jobs. As a
franchise owner, your hard work will directly result in higher profits for your business, but most
franchisors will require continuous monthly royalty payments equaling 5-10% of your profits.
