When it comes to starting a business, it is important to weigh the pros and cons of entrepreneurship before you commit yourself. In most cases, buying a franchise would probably be the most viable alternative to starting your own business, because of the proven success rate. Unfortunately, this is not entirely the case, success is not always guaranteed. Like any business, regardless of industry or ownership, owning a franchise also comes with own ups and downs, as well as pros and cons. Therefore it’s quite pivotal that interesting buyers are fully aware of and prepared for franchise advantages and disadvantages before deciding to own one. See of them below:
Advantages of buying a franchise
Low risks and failure rate
Buying a franchise comes with plenty of benefits including the lower costs due to the bulk opportunity and benefits available to the franchisor that would be passed onto you as a franchisee. Also, because of the support and backing of a larger, established corporation, franchises are a more secure investment than new businesses. These corporations have models that have been tested, most of the time in different markets across the country, and have already proven themselves to be competitive and effective. And because of the proven success rate of franchises, banks are more open loaning money to potential franchisee than independent businesses, they know that investing in a franchise is a safer bet than investing in new business.
Help with Start-Up and beyond
When you buy a franchise, your products or service offering will have already established a market share. The franchisor gives you support - which comes in the form of a complete package including training all the equipment, supplies, and instruction or training needed to start the business. In many cases, you also get on-going and training, advice and help with management and marketing. Your franchise will reap the benefit of the parent company's national marketing campaigns, for instance
Build a business relationship
One of the key benefits of running a franchise is the numerous business relationships already established by the franchisor. In most cases, relationships with suppliers (and perhaps distributors) will already be in place and easy to manage. The advantages of already established relationships with advertisers and marketing teams may also be of benefit to the new business start-up.
No prior experience needed
While experience counts a lot when venturing into entrepreneurship, when it comes to running a franchise, however, is something you don’t entirely need in order to succeed. Because of the training received from the franchisor, you will be equipped with the necessary skills to operate the franchise. In fact, a good franchise system will provide all the systems training you need, and indeed many systems prefer you to have no technical experience – so you can learn from a clean slate. Nonetheless, if you’re going to be running a business with staff it would be expected you start with some management experience and financial skills.
Disadvantages of buying a franchise
Difficult to exit business
A franchise relationship, as with a marriage, can come to an end. Put simply, buying franchise means entering into a formal agreement with your franchisor and this sometimes can have dire repercussions going forward. For example, when you consider selling or leaving the business. This process can often be long and gruelling and to some extent in an ugly manner. In truth, selling a franchise can be more difficult and have more pitfalls as any buyer is bound by the contract and terms negotiated with the franchisor when the franchise was granted.
Restrictions
Owning a franchise comes with a lot of guidelines and rules that a franchisor will need to abide by. The restrictions placed on you and your business can include hours of operations, where and how you advertise, a number of employees, how you handle complaints, what products you can offer and what vendors you must buy supplies from. Moreover, you may find that your potential for future growth is limited I the sense that, most if not all, franchise companies often restrict territory areas to prevent similar stores from competing with each other for customers. If you purchase a franchise, be prepared not to open another one within a certain geographic distance from your original location. Check with the corporate office before your first purchase to understand any territory restrictions.
Income expectations:
A lot of people tend to think that running a franchise will generate one large sum of profits. This is not true most of the time. The fees that a franchisee pays to the franchisor often means a big cut in profit and due to the limits imposed by the rules of the franchise, it is often less easy to invest the profits in a tax-efficient way as you could be forming a new limited company. A franchise might benefit from higher profits in the beginning, but in the long term, they will often find that starting their own business would have been more profitable. If you have unrealistic expectations, your investment in rands, time and effort and may become a negative influence on the system.
Sure, franchising may seem a simple way to venture into entrepreneurship, but that does not guarantee one that they would succeed. The same principles of good management such as making good and well-informed decisions, hard work, good customer care remain significant in your course to running a successful franchise. In closing, as with other forms of business, the advantages and disadvantages of a franchise need to be properly considered and balanced before you commit yourself. And while many businesses would opt to start their own businesses that get tied to a franchise contract agreement. That is not to say that setting up a franchise is not worth trying out!