The Pros and Cons of Opening a Franchise

Warrior House News | By Shannon Sanford
Posted: 21/04/2015 07:04GMT | Updated: 5 years ago

Opening your own franchise can be an exciting endeavor that has the potential to be very lucrative.  However, it is a good idea to familiarize yourself with both the advantages and the disadvantages before you take the plunge.  The following is a list of pros and cons to consider prior to opening your own franchise:

The Pros and Cons of Opening a Franchise

PROS:

  • Prime Business Locations.  According to the British Franchise Association, having a lucrative place to conduct business is one of the main reasons that franchising is such a viable option.1.  Unlike typical start-up businesses, many franchisors can afford to locate in popular shopping centers and at the main intersections and interstate exchanges.  In addition, even if franchisors do not actually purchase the property for you, they can sometimes help to bargain with commercial leasing managers.2
  • Easier Finance Opportunities.  Bank managers evaluate loan applications based on the ability to pay the loan back.  Accordingly, high risk operations have a much less chance of being approved.  Since franchises already have business models in place that have been shown to work, the banks are much more likely to lend money to them rather than to independent businesses.   
  • Your Brand Name Will Be Easily Recognized.  One benefit of opening a franchise is that people will quickly associate your brand name with a certain level of quality.  Accordingly, it will not be as difficult to persuade customers to buy your service or product.
  • Easier Employee Recruiting.  Locating good staff members is an important part of having a successful business.  A franchise that has a well-known name will have a better opportunity to locate quality employees from a much larger job pool.3
  • Ongoing Support.  There is normally a lot of help, assistance, and on-the-job training when opening a new franchise.  Many franchisors will also assist you with accounting and start-up costs, which include automobiles or equipment.  Likewise, some will help with your marketing campaign in order to help you reach your target market.  Although the type of support depends on the franchisor, you may be offered the help of on-site representatives who will make quick visits to your store; or you may have access to a 24-hour helpline that you can call when you run into questions.1

CONS:

  • Long Hours.  Working 60 hours or more each week can be required of franchisees who are trying to get their businesses off and running.  Also, incorporating the successful business practices of the franchisor is a monumental task that requires a lot of support from your friends and family.
  • Lack of Innovation.  Franchisors will most likely instruct you on exactly how to set up your store and the specific way that it must be organized.  They typically do not like any deviation from the typical business practices and design layout of the brand name.  In addition, a breach of contract can result in being fired from the franchise with no reimbursement for invested funds.2
  • Expensive Operating Costs.  Franchisors normally charge an initial joining fee which can vary from under a thousand pounds to several tens of thousands depending on the terms of the agreement.  If materials and equipment are not included, then you may have to buy them.  You will also be required to pay a price for business overhead expenses as well as royalties to the franchisor, which are normally calculated by percentage and are based on your turnover rate.  In addition, some franchisors will require that you have a specific amount of working capital before you will even be considered to be a viable franchise candidate.1 Likewise, the franchisor may require you to pay a fee in order to extend your franchise agreement when it comes up for renewal.2
  • External Factors Can Impact Your Future.  Many things can adversely influence your business.  For example, it is possible that another franchise may begin operations in your area and can push you right out the door by enticing your customers to shop at their business.  If this practice is legal under your franchise agreement, then you are powerless to take action.  In addition, if the franchisor makes bad decisions, it can negatively affect your business which may cause you to lose customers and damage your reputation.1

There are many pros and cons when it comes to opening your own franchise.  Although you can make a good living and have a sense of accomplishment from being your own boss, there are various challenges to take into consideration before signing the final agreementI hope that these tips will be very helpful to you as you pray about making the best decision for yourself and your family.

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1 http://startups.co.uk/what-are-the-pros-and-cons-of-becoming-a-franchisee

http://net.workspace.co.uk/social/resources/pros-and-cons-of-franchising)

3 http://sbinformation.about.com/cs/bestpractices/a/aa011203a.htm

Shannon Sanford

Shannon Sanford

With over thirty years of writing experience, a MBA, and a BS in Psychology, Shannon has written on a variety of topics including: Business, Health, Science, History, Human Resources, Psychology, etc.
Shannon Sanford

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