Pros and cons of investing in a franchise

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Investing in a franchise can be a great way of starting a business. Usually, starting a business from scratch means confronting a lot of uncertainty and taking a leap into the unknown. But with a franchise, many of the most important elements for a successful business are already in place, and the underlying brand and concept are proven.

Of course, there are few certainties in business and buying a franchise isn’t a guarantee that you will have an easy ride. Franchises that provide almost instantaneous and sustained success are rare, and there are certainly downsides to buying a franchise instead of starting a business the conventional way.

Pro – Skip the startup stage

Most new businesses will fold within the first few years of opening; the startup phase is particularly precarious. Starting a new business requires more than just an idea and startup capital; you also need a business plan, market research, product testing, and a host of other preparations. Without these, building a successful and enduring brand is an even riskier proposition.

Buying a franchise enables you to skip over this part of the process. By the time a business has reached a point where it can be franchised, it will already have established its brand and proven that the underlying concept can support a viable business. As a franchisee, your job will be to take that concept and make it work in your local market.

Con – You have less freedom over how you run your franchise

Owning a business means you have complete control over how it operates and the freedom to make decisions however you see fit. However, as a franchisee, you will have to make decisions within the franchisor’s operating framework. When you agree to become a franchisee, you will have to sign a franchising agreement that defines the parameters of your relationship with the franchisor.

For some entrepreneurs, this loss of freedom can make running a franchise more difficult. On the other hand, more indecisive leaders might find that the franchising agreement aids their decision making by simplifying their thought processes. Many franchisors will be willing to show some flexibility if the franchisee comes to them with a proposal for adjusting their operating procedures in some way that makes sense. However, franchisees will usually have to seek the franchisor’s permission to make even relatively minor changes, even if they appear to make complete sense.

Pro – Built-in brand recognition

Franchises for sale are already successful in at least one location. Not only does this mean they are built upon a concept that is proven to work, but it also means that the brand has already achieved success and will have established a userbase. Building a brand is difficult and takes time. It is also a completely separate process to building a business. A successful business doesn’t necessarily equate to a popular or successful brand.

As more franchises for sale open in different locations, the underlying brand will reach a wider audience, and its name recognition will continue to grow. Each franchisee is responsible for marketing their franchise in their local area, while the franchisor generally takes responsibility for global and nationwide marketing. Some franchises are so well established that any new franchise is guaranteed to attract a decent amount of business after it opens.

Con – High startup costs

While investing in a franchise means your business can hit the ground running without having to worry about the usual pitfalls involved in opening a new startup, the costs of buying into a franchise can be significantly higher than those of starting a new business from scratch. In some cases, the franchise fee alone will cost a significant portion of a franchisee’s liquidity. It’s important to remember that while a franchise is built upon an already successful business, there is no guarantee that it will be profitable for the franchisee; there’s always an element of uncertainty when opening a new business.

Pro – Training programs

One of the most important benefits of franchising is that you know you are buying into a system that can easily be replicated. The goal of a franchise is to replicate the key elements of a business that made the original branch or outlet a success. That means policies and procedures will already be in place for you and set out in the franchise handbook that your franchisor will give you when you first open a franchise. With all these elements in place, training new staff and bringing them up to speed with how things work and how they should approach their roles is a simple and painless process.

Whether investing in a franchise is right for any individual or not will depend on numerous factors and the specifics of the franchise in question. However, the advantages and disadvantages of buying into a franchise are consistent for almost every case.

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