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Franchising Advantages vs Disadvantages

Buying a franchise can be a quick way to set up your own business without starting from scratch. But there are also a number of drawbacks.

Advantages

  • Be your own boss (at least to a point) as appose to working for an employer.
  • Lower Failure Rate – When you buy a franchise, you are buying an established concept that has been successful. Statistics show that franchisees stand a much better chance of success than people who start independent businesses.
  • Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
  • You can use a recognized brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise – the ‘franchisor’.
  • Buying Power – Your franchise will benefit from the collective buying power of the parent company as the franchisor can afford to buy in bulk and pass the savings along to franchisees. Inventory and supplies will cost less than if you were running an independent company.
  • The franchisor gives you support – usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
  • Star Power – Many well-known franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers.
  • You usually have exclusive rights in your territory. The franchisor won’t sell any other franchises in the same territory.
  • Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
  • You benefit from communicating and sharing ideas with and receiving support from other franchisees in the network
  • Relationships with suppliers have already been established.
  • Profits – A franchise business can be immensely profitable. (Think of Jollibee and Macdonalds for instance.)
  • Advertising – Franchises offer national advertising campaigns that are included in your franchise fee. This is a huge benefit when considering a franchise.

Disadvantages

  • Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
  • The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local market. As a franchisee, you are not the one actually running the show, and some franchisors exert a degee of control that you may find excruciating
  • The franchisor might go out of business.
  • Other franchisees could give the brand a bad reputation.
  • You may find it difficult to sell your franchise – you can only sell it to someone approved by the franchisor.
  • Ongoing Costs – Besides the original franchise fee, royalties, a percentage of your franchise’s business revenue, will need to be paid to the franchisor each month. The franchisor may also charge additional fees for services provided, such as the cost of advertising.
  • Shark-Infested Waters – Buying a little-known, perhaps inexpensive franchise can be a real gamble. Just because a business is offering franchises is no guarantee that the franchise you buy will be successful. In some cases, franchising is the business; all the franchisor is interested in is selling more franchises.
  • Not all franchisors offer the same degree of assistance in starting a business and operating it successfully. Some are just startup operations – and everything after startup is up to you.

Some of the things you will want to consider before buying a franchise include the following:

  • Pick something you are going to enjoy doing years down the road. It’s easy to get mislead by promises of high profits and outstanding growth, but in the end, if you don’t like it, chances are you won’t stick with it.
  • Check out the competition. Research is critical whether you are starting your own business or buying one. Find out who your competition is. Are they busy? Is the market already saturated with this type of business? Asking questions like these can often save you from making a costly mistake.
  • Buyer beware. Remember, franchisors want to sell you a business. Even though many franchisors will present you with their profit projections, it is best to come up with your own figures.
  • Find out about financing.  Some franchisors offer some type of financing.
  • Evaluate the overall strength of the franchisor. Make certain you are given a all the rules and regulations of that franchise

sources: businesslink.gov.uk, sbinfocanada.about.com, businesswealth.com.au

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