Buying a Franchise Advantages and Disadvantages
Buying a Franchise
Advantages and Disadvantages
There are both advantages and disadvantages to buying a franchise. Below are examples from each perspective. Utilizing a free, no-obligation franchise consulting service may help you to decide if a franchise business is right for you.
- Proven business system - The franchisor has developed a methodology for running the business that can be followed, minimizing the need to develop such a system or learn by trial and error
- Established product / service - Franchises offer various levels of established market acceptance for their product/service, saving you the time and money of having to create this brand awareness from scratch.
- Marketing expertise - Franchisors offer established and proven marketing outreach strategies that you can follow to support your ultimate success.
- Financial assistance - Franchises often offer some form of financing for purchasing the franchise based on their established reputation and a track record of other franchisees succeeding. View Small Business Financing – Weighing Your Options .
- Professional guidance - Franchisors often provide access to training, ongoing guidance and other resources to help a franchisee succeed. This level of expertise is not likely to be available to you when launching a non-franchised, new business operation. View Franchisor Support – What Can You Expect?
- Opportunity to learn - Even if you do not have experience in operating a particular type of business, by purchasing a franchise, you will be provided access to what you need to learn and support to help you succeed. View How To Evaluate a Franchise Training Program.
- Recognized standards - Franchises are valuable typically because there is an established reputation for quality and service and one that is maintained and supported by all franchisees.
- Cost effective - Where franchises offer established business systems and often physical assets, the business can often be started with less capital than might otherwise be required for a non-franchised, similar venture.
- Perceived value- The franchisor is providing something of value. While the franchisee is initially glad to pay for this value, they may become discouraged as time goes on and lose sight of what this value is as less tangible assistance is provided after the initial launch.
- Franchisor control - What is embraced as good news in the beginning - a standard form of operation - can be viewed as an inconvenience later on where the franchisee must agree to follow the operational format, which typically discourages adding other goods or services, promoting a different image, or changing other aspects of the operation.
- Ultimate responsibility - While the franchisor provides a foundation for operating the business, the ultimate success lies with the franchisee who will need to be prepared to make some decisions based on what may be best for each local situation.
- Risk of fraud or misunderstanding - Beware of unscrupulous franchisors that do not offer real value, or make promises that simply are unrealistic. View The Uniform Franchise Offering Circular; Just How Important is the UFOC?
- Termination/transfer terms - Franchise agreements include specific terms for terminating or transferring ownership of a franchise. Know your options in terms of when you can terminate, when the franchisor can terminate, if you can sell the franchise, and/or succession planning issues. View Avoiding Wrongful Termination: Know Your Franchise Rights.
- Performance fluctuations - If other franchisees perform poorly or unforeseen events negatively affect the reputation of the franchise, your operation may be affected as well.
- Smaller profit margins - Ongoing royalty fees and supply costs may result in lower profit margins. View Ask These Money Questions Before You Buy a Franchise.
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