Franchise Pros and Cons: Is Buying a Franchise Worth It?
For someone looking to own their own business, they may need to make the decision between an independent small business, or opting to go with franchise ownership. In an entrepreneur’s world, it’s about weighing the pros and cons of each and coupling that knowledge with what they love about business ownership. There won’t be a concrete answer on which option is better, but there are aspects that can help tip the scales.
Franchise Pros: Benefits of Buying a Franchise
There are many benefits associated with investing in a franchise and running it as your own business. Each pro and con weighs more for some than it does for others, but it all depends on what type of experience you’re looking for in your business ownership. For those that don’t have as many assets to gamble, or a lot of experience in creating a successful business model, owning a franchise may be the right fit.
- Immediate Brand Power: Brand power is one of the defining characteristics of what a franchise business is. Franchisee’s take an established brand and run it in a way that has already proven to be successful. Even for franchises that aren’t as established as others, there is already a marketing strategy and identifiable brand in place. For an independent small business, your brand is starting from the ground up.
- Easier Than Starting Your Own Business: Starting your own business is hard. Even if you are familiar with what it takes to start a business, there’s no denying the work it takes to create a profitable and successful business. A franchise already has a pretty good idea of its product, business model, customers, and likelihood of success.
- Faster Profitability: Eliminating much of the trial and error aspect of business ownership leaves more room for steady growth at a fast rate. Instead of planting a seed, you plant a tree that just needs to flourish. Startup costs may be higher, but your profitability will be faster. Some franchise businesses may be more profitable than others, but what they all have in common is a model built on success. Without that success, there wouldn’t be more locations.
- Access to Resources: Being a franchisee means having access to resources provided by the franchisor. Those resources are tried and tested for success and duplicated in other locations. Training, materials, systems, and research are all things given to you instead of aspects you’re required to obtain on your own. Not only that, but you’re a part of a community of other franchise owners that can offer support and advice as well.
- Predictability: Since a franchise model is easy to predict, the gamble with your investment may not be as big as it could be when independently starting your own business. You’ll be better able to predict supply, demand, pricing, profitability, and hurdles with a model used by so many others before, during, and after your own experience. Sometimes business ownership is the biggest risk people take with their money, so predictability is reassuring.
Cons of Franchises: Owning a Franchise Isn’t for Everyone
Though a franchise might be great for some, it’s definitely not for everyone. Where a franchise thrives in predictability and profit, it lacks in opportunities for innovation and independence. Though the risks are lower than that of an independently owned small business, the risk is unequal in a franchisor/franchisee relationship as well. For these reasons, a franchise experience isn’t for everyone.
- High Startup Costs: Investing in a franchise isn’t the cheapest route in terms of business ownership. You’ll receive a brand, successful business model, and access to resources to help keep your business successful, but the price for those things is high. Even when profitability is typically higher and predictable, there is still a costly startup fee that some may not even be able to afford.
- You Never Stop Paying Royalties: The way a franchise works is through a strict give-and-take relationship. You’re given the brand, model, resources, and security, and in return the franchisor will take royalties from your profits. Forever. The most common type of royalties are fees calculated between 5 and 8 percent of the franchisee’s gross sales paid per month. This may not seem like a lot, but over time that amount adds up.
- Less Independence: Possibly the most difficult aspect of franchise ownership is the lack of independence and flexibility. The business is yours except when it isn’t and that can be a hard pill to swallow for many people. Your franchisor may have strict rules on everything from prices to decor. You may find faults in the business model that you have no freedom to fix. Your decisions are yours, as long as you follow the model, and that can be difficult.
- Not All Franchisers Offer Support: In exchange for investing in a franchise and paying royalties, your franchisor should offer you support to ensure success. Unfortunately, that is not always the case. For this reason, you should always do research and hire a lawyer to protect your investment in case the franchisor doesn’t follow through. For many franchisees, the result of failure is a lot harder for them than the franchisor who has other resources and assets to fall back on.
- Unequal Risk: The risk in a franchise business may be less likely, but if it happens the results can be unequal. Whether your location fails or your franchisor fails, you’ll be affected negatively in both situations. The franchisor will always get it’s money before you will, so the possibility of failure is scary. Not only that, but liability in many situations will fall on a franchisee and not the franchisor. It seems in many situations, buying a franchise can seem to protect one side of the business much more than the other.
Is Buying a Franchise Worth It For You?
The bottom line of the pros and cons of a franchise business is that it is a great opportunity for some and less so for others. For those that are starting a business because they are passionate about business as a broad term, franchising may be perfect. It’s less about the love for the product and more about finding where you belong in a particular setting. When a brand, profit predictability, and resources are handed to you, you can focus more of your entrepreneurial energy on following the model and finding success. Finding the parts of a franchise journey that are right for you can help you find where your passions lie in the business world.
For others who might be more seasoned in the business world, the strict nature of a franchise may not be the right fit. What a franchise offers is some stability and comfort in an investment, but when you’re able to create a model, brand, and support yourself, the costs might not be worth it. For those that are looking to start a business about a product they are passionate about, they may look for the freedom and innovation involved in independently owned small businesses. Running an independently owned business may be riskier, but the reward is higher and the artistic freedom is there.
Owning a franchise business is a very specific type of opportunity that is tailored to be for a specific type of business person. Whether or not you should consider franchise ownership is up to you and how you interpret the positives and negatives. It’s about weighing security and resources over innovation and easier startup costs, to name a few of the many aspects of franchise ownership. Ultimately, each business owner has to decide what’s more important to them and whether or not a franchise is worth it’s cost.
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Chelsy is a writer from Montana who now lives in Boise, Idaho. She graduated with her journalism degree from the University of Montana in 2012. She enjoys talk radio, cold coffee, and playing Frisbee with her dog, Titan. Follow Chelsy on Twitter @Chelsy5
This post was updated February 13, 2018. It was originally published January 22, 2018.