Every coin has two sides; similarly every business has its pros and cons. The positive side of franchising is so big that sometimes, we fail to look into the negative side while thinking about starting a franchise. But to ensure a secure future, checking out both the sides is very necessary. This way, you can understand whether franchising is suitable for you. To help you in this regard, here is a list of pros and cons of franchise ownership.
The Pros of franchise ownership
• You don’t have to start a business from the scratch. A skeleton business model is available, which you just need to fill up with your hard work and understanding of how the system works.
• The franchisor will help you at every step while you start a franchise business. When you are alone, various hassles like finding suitable real estate and writing a killer business plan can take a toll on your time and energy, which will further push back the launching of your business.
• The franchisor will provide you an estimate of how much money you will need to buy a franchise from it. But when you are alone, many times, you will find that you are staring at unpaid bills without any money source to pay them.
• Finding such an investor, who is willing to invest in a business venture of a novice, is quite difficult. But with franchising, it’s never a problem, because the name of the franchisor acts as a guarantor for the new franchisees. The scenario is even better when they go for small business franchises, as they get SBA loans for almost all their business requirements.
• The bulk purchasing power of a franchise system ensures that you get discounts from leading manufacturers and distributors.
• Developing a market position takes a long time; but with franchising, it comes easily as you are marketing the already established brand-name of the franchisor.
The Cons of franchise ownership
• Your freedom as an entrepreneur is restricted when you are a franchisee. Your franchisor may dictate you in almost everything, starting from when you open your store and what you can sell to what will be the design and color of your store!
• You may suffer loss, if another franchisee somehow gets entangled in bad publicity. Like the proverbial “rotten apple”, it can damage the whole chain.
• Your franchisor may be out of sync with local market and force you to adopt policies that are counter-productive.
• Your franchisor may force you to buy products from designated suppliers at higher prices than the market-rate.
• Joining hands with certain franchisors can be damaging, as they may have restrictive non-compete clause, if you terminate or don’t wish to renew your franchise agreement.
• A high royalty fee may eat into your profit margin.
Pros and cons of franchise ownership - To learn more about this author, visit Ray Flores's Website.
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