Advantages and Disadvantages of Owning a Franchise

When somebody thinks about starting a business, owning a franchise comes into mind. A franchise is an opportunity to buy into an existing and successful business. The business model, supply chain, and expert technical support are pre-defined. Some of the best-known franchises have an impressive success rate with low failure. However, before starting a new business, it is advisable to weigh the pros and cons. If you intend to buy a franchising business, the known advantages and disadvantages can help decide if it is the right business for you.

Advantages of Owning a Franchise

There are several advantages of owning a franchise, namely:

1. No Experience Necessary

When you buy a franchise, then you do not necessarily have experience in the same field. Many big franchise brands provide training and support to educate the franchise owner about the business. For instance, if you own a franchise of an established brand, you will learn about their operations, industry secrets, work culture, etc., that you would have learned over time. It is like tapping into the experience of the previous owner and increasing the chances of success.

2. Lower Risk

Investing in a franchise is a more secure investment than starting a new business. This is because there is the support of the larger corporation. These corporations have tested business models with different market reach across the globe. The business has already proven its effectiveness. The history of the big corporations' success makes it easier to get a franchise loan to start a business than any other loan. The banks will provide an easier franchise loan because of their success history.

3. Brand Recognition and Customer Base

After starting a new business, it is difficult to find the first customer and then retain them for a long time. It is one of the reasons why people turn into franchising businesses! Buying a franchise is like bypassing things such as marketing and branding. Moreover, much marketing is not required when you buy a big brand franchise because the customers already know the brand! You get access to the established customer base and potential pool of employees. Thus, when you buy a recognised and established brand, you get an accelerated path to profitability by bringing customers from day one.

4. Extensive Franchisor Support

Most businesses support their new franchise, especially when they are about to start. They help provide them with pre-opening assistance like site selection, design, financing, construction, training, and grand-opening function. Further, many franchises offer loans and other financial support to the new franchises.

5. Collective Buying

One of the major benefits of investing in a franchise is benefiting from deep-rooted relationships. Thus, when you become a part of the franchise system, you will benefit from the established relationships with suppliers and other vendors. This gives the franchise owner an edge as the materials become less expensive because of the collective buying power.

6. Be Your Own Boss

When you own a franchise that allows you to become your boss, this helps you maintain a flexible schedule. Moreover, you have autonomy over your career, like you can choose to work from home or find time to do something you like. Thus, when you own a franchise business, you have a support system to discuss or need any assistance. Always remember that “franchising business is for yourself but not by yourself.”

Disadvantages of Owning a Franchise

Despite many advantages, there are some disadvantages of franchise business that should be considered:

1. Guidelines and Rules

The disadvantage of owning a franchise business is that you have to follow the rules and regulations of the franchisor. As per the franchise agreement, there may be certain dictation of operating hours, business locations, product pricing, usage of supplied products, etc. Sometimes, the franchisors have a degree of control over you, which you as a business owner may find difficult to handle. The reason behind keeping this level of control is to maintain product uniformity so that every franchise has the same kind of products and look.

2. High Initial Investment

Depending on the type of franchise you choose, the initial investment can burn a hole in the pocket. However, many franchise options are affordable. However, some franchise firms charge monthly royalty fees as their franchisor fee, which is approximately 4% of the sales revenue and helps with profits. Thus, the initial investment may be high when acquiring some of the big companies' franchises.

3. Limited Creativity

The franchises have predetermined brands and creative limitations for owners who are looking to explore and make decisions. As a franchise owner, you always have to abide by the company rules, and hence it becomes impossible to make alterations or additions to the business brand or model. There are various restrictions such as suppliers, the products that could be sold, places where to operate, and the store design. This binds the owners, which hampers creativity.

4. Sharing Financial Information With Corporates

Many franchise owners are collecting information from the franchises to improvise their business model. They also share their royalty payment details. Hence, privacy is very little as regards financial business. Further, many franchise companies have to share substantial financial information with other companies. This gives them the benchmark to their performance in respect to another franchise system. This gives scope to the franchise to improve their financial performance and increase profitability.

Franchising business comes with its list of advantages and disadvantages. Additionally, you can research to know and find the right franchise for you. Once the franchise is chosen, you must understand everything about the business functioning, opportunities it has to offer, etc. The right franchise will offer you great success. You can visit OkCredit to know more about the franchise business.

Also read:

1) Things You Need About Franchise Business In India
2) How Does the Franchise Model Work?
3) Franchises: What Differentiates them from Businesses "From Scratch"?
4) How To Start Your Own Franchise?
5) OkCredit: All you need to know about OkCredit & how it works.

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FAQs

Q. What factors should be considered before selecting a franchise?

Ans. Purchasing a franchise business could be a risk, and you need to carefully consider a few factors before doing so. We have listed down factors such as product demand or services, franchisor background, competition, and support.

• Demand: Before investing in a franchise business, you should know if the business's demand is seasonal, temporary, or continuous. This will help you choose the right business.
• Competition: You should know everything about your competitors, what services they offer, where they are located, and if they offer similar products.
• Training and Support Services: Another reason for investing in a franchise is to get the franchisor’s support. Like what is the training and ongoing support available for the franchisor? What backgrounds are needed to acquire the training?

Q. How do I know if I will become a successful franchise owner?

Ans. The most important thing in evaluating the right kind of business is to know your skills, experience, and abilities. The ideal candidate is the one who wants to succeed and is creative. Moreover, you should be willing to balance your entrepreneurship skills with the franchisor’s existing business principles. Mutual understanding, value, and achievement assure a successful partnership between the franchises.  

Q. What are the responsibilities of a franchise owner?

Ans. When you invest in a franchise business, you are connected with the brand, and as a business owner, you should keep in mind the following responsibilities:

• You have to pay the royalties and franchise fees to run the business.
• You have to find a suitable location to set up the business.
• It is mandatory to ensure that you have the right employees and with proper training.
• In the end, you have to run the business as per the rules and expectations of the franchisor.

Q. What are the criteria for choosing a franchise?

Ans. Every franchisor has a certain list of traits and qualities that they are looking for in their brand. So, if you are interested in investing in a franchise, determine if your skills and personality match with them.