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What are the pros and cons of buying into a franchise?
I am not expert, and not a budding entrepreneur myself. As far as I know, business format franchises generally fall into one of two categories:
- a 'job franchise' (in which the franchisees actually do the work that provides the service to the customers)
- a 'management franchise' (in which the franchisee is mainly organising others to do this labour)
It is important to appreciate the difference between the two categories because it will help you to find a franchise that suits your skills.
Pros of buying into a franchise
- You are often investing in a tried, tested and successful business formula.
- You are gaining the benefit of a franchisor's experience and knowledge thereby reducing the scope for mistakes. In particular you are spared many of the administrative headaches associated with setting up a business.
- In many cases you will be taking advantage of the name and reputation which has already been built up by the franchisor.
- On many occasions the franchisor offers training and ongoing support within the package.
- You can benefit from the franchisor's activities in such areas as advertising, marketing, research and development and you can take advantage of their enhanced buying power.
- Many high street banks see franchising a sound investment and are more likely to lend more, and on better terms, than if you were starting your business from scratch.
- A properly tested and structured franchise system, offered by a competent franchisor, offers more of a safety net than going into business independently.
- You do not necessarily need direct experience in your chosen area so this can open up access to many types of business which you may not have otherwise considered.
- If you carry out your research properly, you should have a clear idea of how you will be spending your time.
- As with any form of self employment, you will be working for your own future and not someone else's.
- It is a well respected method of starting up in business.
One of the biggest names of Franchise
Cons of buying into a franchise
- Often a percentage of your profits goes to the franchisor.
- You are not entirely your own boss.
- Your business practice may be restricted with regards to; choice of suppliers, employment policy, customer base and territory etc. You may find this frustrating.
- A reasonable sized investment is required (ranging from about £5,000 to £200,000).
- The failure of a franchisor can leave the franchisee with a business which is not as viable as an independent operation.
- If the control of the franchise changes hands it could be for the better, but it could be for the worst.
- You are very much dependent upon the franchisor and other franchisees to maintain the integrity of the brand. One bad apple can adversely affect the whole network.
- You may not be entitled to resell your franchise.
- Franchising is a complex area with many sources of potential conflict between the franchisor and franchisee, particularly regarding the terms of the contract.