What You Should Know About Franchising Advantages and Disadvantages
Any type of business can be profitable when there is good leadership and management. However, owning a franchise is more advantageous than many types of businesses. You can take advantage of a proven system that has generated money before. You can also get financial support from local banks or dedicated funds easily primarily because franchising has a great potential for larger profits. You get a ready made website including web hosting that has been tried and tested for conversions from the franchising company.
In the UK, for example, 90% of franchising businesses were profitable yearly for more than 20 years. The franchise industry contributes around £17 billion annually to the country’s economy. This information alone is proof that the industry is extremely competitive and profitable.
Despite this mind-blowing potential of franchising, success may not be guaranteed without the proper leadership and solid business plan. Therefore, it is important to understand the franchising advantages and disadvantages, so you know what to expect in starting your own business. To know what the advantages and disadvantages of buying a franchise are, read on!
What Is a Franchise?
A franchise is an opportunity for the franchisee (you) to do business with the franchisor (the company you are buying into). The franchisee buys into the parent company where they can organize, train, merchandise, market, and manage the business model for a monetary purpose. Some popular franchises achieve excellent success rates and have minimal chances of failing.
What Are the Advantages of Owning a Franchise?
Owning a franchise is highly profitable. It may require higher costs, but the investment is worth it as it can generate larger returns. One successful and popular franchisor you can check is McDonald’s.
Many successful franchisors have established national, or even international, popularity. Buying into their business model assures you of a wider market and loyal customers.
Lesser Costs for Goods
Your franchisor will also give you the benefit of getting lesser costs for your needed goods. When you own a franchise for a fast-food chain, for example, your franchisor provides you with the equipment, food and beverages, and training programs with lesser costs than an independent business. This gives you the opportunity to have more buying power.
Valuable Business Assistance
Because you are carrying the brand for a larger company, your franchisor will provide you the assistance you need. You will receive valuable instructions and tips to run your franchise. You will also be supported with an ongoing training to help you manage the franchise more effectively.
Low Chances of Failing
As mentioned earlier, owning a franchise has a low failure rate. This is because you are buying into a company that is already well-established and has a wider market reach. Your success rate is even higher than many independent businesses.
What Are the Disadvantages of Buying Franchise?
High Failure Risk
If you buy a less popular and cheaper franchise, your risk of failing is high. It does not mean that when a company offers a franchise business, you can guarantee high success rates. Less popular and cheaper franchisors might also have fewer audiences.
Although buying a franchise from a well-established and popular franchisor is best, it is also costly. You will need a huge amount upfront and then other finances for later preparations.
Although many franchisors offer ongoing business support, some may not give you everything you need. Some franchisors may only provide support at the beginning and will stop as you have established your franchise. This is why it is important to do research into the franchise before you commit to buy.
The agreed franchise fee is just the beginning. You may need to pay a percentage of royalties each month. Your franchisor might also charge you with fees for other services like advertising.
Following Your Franchisor’s Rules
Following your franchisor’s rules and guidelines is the primary disadvantage of owning a franchise. Some may set rules and guidelines that allow them to have control over your business, which can be frustrating.
Your franchisor may also state the location, business hours, pricing, equipment, and others you must follow or use. Franchisors may need to do this to have uniformity for all the business franchises.
What to Expect in Applying for a Franchise
Now that you know the franchising advantages and disadvantages, it is time you learn about the process when buying a franchise.
Filling Out the Form
Once you contacted the franchisor, they might give you a form to fill out. This form allows them to understand your financial capabilities. They want to ensure that you can commit to the franchise and will not back out.
The form might also include your business goals and experience in running a business. This allows your franchisor to determine your competence in operating a business. Your franchisor’s goal is to maintain the business model they already established, so your franchise’s success is significant.
Once your franchisor is happy with your answers on the form, they will move you to the next phase of the application. You will have an interview with the franchisor.
During the interview, your franchisor will continue to determine your suitability, commitment, and interest, so they can better assess if you can run a franchise. You on the other hand will have the opportunity to know more about the franchise.
Once your franchisor sees that you can run their franchise, they will offer you a contract. The agreement contains the obligations of both the franchisee and the franchisor.
Some parts of the contract may welcome negotiations. You can also request for promises, obligations, or commitments that the contract does not have, as long as you both agree to them.
Knowing the franchising advantages and disadvantages is important if you want to become successful in this industry. By learning these details, you can better assess how you would like to go about owning a franchise. Make sure to do as much research as you need, so you can study the franchising business well!