efore investing in a Franchise, it is imperative that you do as much research as possible. If pressed for time you can hire a business development consultant, a franchise consultant or a franchise Broker, it is essential that you have as much information as possible. There are Pros & Cons when it comes to owning your own company vs becoming a franchisee, below is a summary of those points.
Proven Formula/Great Track Record
Small businesses have a 91% percent survival rate after the first year but after five years only four out of ten businesses will still be trading. Most franchises have a proven business methodology, this means that the hurdles, setbacks & environmental factors small start-ups face are very much avoided. Statistically speaking, franchises are much more likely to succeed in comparison to owning your own business. Plus, in a franchise as a franchisee you can legally request crucial information & figures to be disclosed to you before you make your final decision.
Brand Power
One of the biggest obstacles in business is creating a core customer/consumer base, usually it takes time and effort for customers to trust you, for stakeholders to align with your vision & to create your own niche especially in crowded markets. You instantly profit from intellectual properties, trademarks & patents when you join a franchise.
Support
When you join a franchise the amount of support you get is unquestioned. You gain strategic access to a global business network. Your business layout is usually done by the franchisor or they procure the right contractors to construct the business for you. There is operational support, the franchisor usually has employees dedicated to helping franchisees with running their business. Staffing needs are usually met or supported & staff training is done in-house to maintain standards. Thirdly Supply Chain Management & Logistics are provided by the franchisor, so issues such as arduous negotiations with large suppliers or setting up a costly distribution network are non-existent.
Finance
Set up costs can be pricier in terms of buying into a franchise business, however banks, third party lenders & investment groups are much more obliged to invest into a company that has a safer & much more reliable ROI. Funnily enough if you become successful some franchise groups even lend franchisees money, you can also get SBA loans which usually do not balloon in payments or penalties. Downturns are an appropriate time to invest in franchises as the buy-in fee’s does decrease.
Collectiveness
The life of an entrepreneur can be hard & pain-staking, this usually deters some entrepreneurs who feel they do not have the ‘Business’ acumen or ability to own their own business. Being part of a franchise requires you to adhere to set rules & regulations, so there is less likelihood to indulge in aimlessness business activity. Secondly franchisees do actually help each other through on-going quality control, because the “system” needs to operate at an optimum, fellow franchise owners are always continually discussing, adjusting & revising ways in which their businesses operate, this inadvertently creates an 'insulated' entrepreneurial culture amongst franchisees.
However here are a few cons
- Franchisors are not legally bound to renew the contract after the end of your agreement
- The franchisor can go out of business
- Other franchisees can give their counterparts a bad name (PR disasters)
- Buying into a franchise means buying into a legally binding agreement, and you are answerable to the
franchisor.
- Due to rules & regulations there is less room for creative entrepreneurs
- Buying a franchise means an on-going profit sharing with the franchisor
For me personally I think having ownership is very critical especially in today’s global market. An entrepreneur must be able to adapt & be flexible to tiny market/environmental changes, I’m not one for structure or stagnate bureaucracy but it also depends what industry you are getting into. Truth be told it actually doesn’t matter I feel as if given today’s global outlook in terms of business the greater sin would be not starting your own. Like a famous Mr Smith once said “The real tragedy of the poor is the poverty of their aspirations”
til next time.
