The pros and cons outlined below should be seen as checklists to explore which business format option could be best for you. As you can see, upsides and downside of franchise ownership are equally weighted. As a next step in your thought process, you should consider taking the Franchisee Placement Test.
- Established brand, business operating system, and management/organizational structure essentially allows you to start your business with little guess-work.
- Failure rate is very low: only about 5% of all franchise systems in the U.S. fail each year, compared to independent businesses where about 30 to 35% failure within the first year.
- You have a network of franchisee associates readily available to gauge your progress, generate ideas, and provide additional support.
- Even with little or no business experience, you can tap into the franchisor’s expertise, training, and support instead of relying on your own judgements.
- You can benefit from the franchisor’s national and regional advertising efforts which help pre-sell your products or services.
- Potential savings in volume purchases by franchisor of products, supplies, and services.
- With franchise success comes the potential for growth within the organization such as opportunities to purchase additional outlets with special, pre-financed conditions.
- You will never be fully independent to make your own decisions.
- You are bound by a method and system of operations which you cannot alter.
- Must pay a monthly royalty fee which is based on a percentage of your monthly sales.
- The costs to buy a franchise can be up to 40% more than starting an independent venture.
- Limitations placed by the franchisor on what you can sell or service, as well as adjusting prices to favor local market conditions.
- If the franchisor generates negative publicity or media attention, your franchise can suffer repercussions from such allegations.
- Being bound to a contract with many terms and conditions can place additional pressures in terms of closing the business, breaching the contract, or making other independent decisions.