The Pros & Cons of Franchising: Is it Right for You?
Make sure you do ample research before committing to a franchising.
If the entrepreneurial bug bit you, you may be thinking of opening or purchasing a franchise. Franchise opportunities exist in almost every industry, from fitness centers to auto repair facilities to sign companies. There are hundreds of franchises out there and fast food, personal services and retail are the most popular of 2014. According to the International Franchise Association, franchising accounts for over 18 million jobs in America and more specifically, 440,000 people in the Carolina’s! Whatever your interests are, you can find a franchise that aligns with them.
Operating a franchise can be a wonderful thing; you get a taste of owning your own business with a built-in recipe for success. Franchisors have much to offer an owner-operator in terms of startup tools and continued support, but not everything about owning a franchise can be so fantastic. There are also cons to being a franchisee. You need to investigate every aspect of a franchise before you jump in because most require a long term contracts and also have non-compete agreements that many times extend beyond the term of their franchise agreement!. Here are some of the major pros and cons of owning and operating a franchise.
Pros of Franchising
- Shorter Startup Period.
The Franchisor has it all figured out; from finding the right location, to how to layout the facility for optimum efficiency and appearance, to negotiating great pricing on equipment, marketing materials, and signage.
- Name Recognition.
Name recognition is one of the main ingredients in the franchisee’s recipe for success. By operating a big name franchise, you immediately have a reputation and credibility in the marketplace – creating built in success for you.
- Strong Support.
Franchisors know what works from an operations, marketing and sales standpoint. A good franchisor can be a powerful ally for a beginning entrepreneur and can offer a plethora of resources and assistance in the initial start-up period. Resources offered by franchisors can include marketing materials and programs, training, and on-going field support for guidance. Franchisors also help on the backend when it comes to negotiating lease terms, choosing a desirable location, and the startup process.
- Franchisee Network.
One of the most enjoyable aspects of owning a franchise is the network of fellow franchisees. As a new franchisee, you are now a member of a nationwide network of entrepreneurs striving for the same goals as you are. This can be a powerful resource and also comforting and a new business owner. Many of these people have been where you are, or face the same challenges, and can help you figure out how to overcome with your obstacles in growing a business.
Cons of Franchising
- Royalty Fees.
Royalty fees – everyone wants their piece of the pie. For all the money you have earned in sales, the franchisor gets a cut for their part in getting you the business. You need to investigate the fee structure thoroughly to insure that there is justification for the various fees. You’ll also want to ensure that the pricing of services or product do not adversely affect your ability to make a good living.
- Less Freedom.
While owning a franchise may feel like owning your own business, the truth is, you are still working for someone who has the ultimate say in how the business is managed. Even though you are managing the facility, the franchisor still has the final word on anything from approved marketing to which products and services are offered, even down to miniscule details such as the company dress codes or hours of operation. Poor franchisors have a way of never being around when you need them, but strangely hindering when you need to make decisions.
- Lengthy Contracts.
Typically, franchise contracts are signed for a 15 to 20 year period. This can prove to be unfavorable for the franchisee for two reasons; one, your contract will not necessarily be renewed at the end of term and two; it is very difficult and expensive to get out of the contract if you are unhappy.
- Poor Overall Plan.
Some franchisors have a great business plan, others…not so much. For example, poor franchisors may not have a well laid marketing plan or a robust franchisee network. This can prove to be incredibly frustrating for the franchisee and with that previously mentioned 20 year contract in place, there’s not much you can do. As a business owner, you will want to ensure your franchisor offers plenty of resources that you can use to be successful.
If you’ve decided that buying into a franchise is for you, the next step you’ll want to take is finding the right franchise. Franchising is growing rapidly, between 2012 and 2013, there was a 51% jump in franchise growth in America. Use this growth to your advantage and drill down further to see what industries are growing specifically in the franchise world. According to Entrepreneur Magazine, franchise industries to watch in the upcoming year are children, food, fitness, seniors and personal electronics. You should also meet with a professional consultant who can help you plan for the future as a franchise owner. A professional can help you determine how you buy into the franchise while maintaining your current lifestyle, and sustaining for the future.