FREE online courses on Franchising Business and You - Franchising
Distinguished - Franchises - Pros & Cons
Franchises are hot items these days. If you've ever checked
into buying a franchise, you know that there is a wide assortment to choose from
offering you just about anything you would want. However, before you decide to
spend all of your savings on the franchise of your dreams, you may want to
consider what the pros and cons of buying a franchise versus starting your
business from scratch. As with anything, there are things you gain and things
you lose. Let's take a look.
The PROS of buying a franchise include the following:
Be your own boss
(at least to a point). Franchises offer you the chance to go into
business yourself even if you are lacking in capital or business experience.
Get a head start.
Compared to normal start-up companies, franchises provide a head start to the
business owner by providing support on an as-needed basis. A common saying in
the franchise industry is "You're in business for yourself, but not by
yourself."
Gain additional
training and assistance.Franchises have a vested interest in your
Success. As a result, many offer extended training and assistance with business
set-up, personnel training, site selection, lease negotiation, collective buying
power, and advertising.
Profit from name
recognition. One of the most difficult things to do when starting a
business is to develop a recognizable presence with your customers. Franchises
eliminate this hurdle by developing an image in the marketplace. This is
important because it saves you both time and money. However, be certain that the
image is a favorable one before you invest.
Although there are definite advantages to franchises, just
remember that there are two sides to every coin. Some of the CONS of buying a
franchise include the following:
You must play by
the rules. If you are buying a franchise because you can't stand
working for someone else, you may want to think twice. When you buy a franchise,
you are not free to do as you please. In many cases, franchisors require you to
play by their rules. These rules may pertain to such things as the products you
are allowed or must carry, reporting procedures, dress codes, hours, and,
overall, how you run your business.
Nothing is ever
free. In addition to the initial franchise fee you will have to pay,
most franchisors require that you pay a percentage of your monthly gross sales
back to the parent company. Many also require that you buy your products
directly from the parent company (which may prohibit you from getting the best
prices).
Please remember that there is no right or wrong answer when
it comes to buying a franchise. You must decide for yourself, depending on your
requirements and constraints. For some people, giving up just a little control
is completely out of the question. Others may like the fact that someone will be
lending a helping hand (even if it does cost a little). For those of you in this
second category, there are some things you need to consider before actually
putting money on the table.
Some of the things you will want to consider before buying a
franchise include the following:
- Enjoy yourself. Pick something
you are going to enjoy doing years down the road. It's easy to get mislead by
promises of high profits and outstanding growth, but in the end, if you don't
like it, chances are you won't stick with it.
- Check out the competition.
Research is critical whether you are starting your own business or buying one.
Find out who your competition is. Are they busy? Is the market already
saturated with this type of business? Asking questions like these can often
save you from making a costly mistake.
- Buyer beware. Remember,
franchisors want to sell you a business. Even though many franchisors will
present you with their profit projections, it is best to come up with your own
figures.
- Find out about financing.
Over 250 franchisors offer some type of financing. Find out if the one
you're interested in does.
- Evaluate the overall strength of the
franchisor. Make certain you are given a disclosure document called
the Uniform Franchise Offering Circular. This document will help you to
evaluate the overall strength of the franchiser by providing you with
information required by the FTC Rule and by state law. It will include such
things as the franchisor's business background, the financial history of the
franchise, termination and renewal statistics, product purchase requirements,
training programs offered, etcetera.
- Investigate state regulations.
Franchise disclosure laws are administered by agencies in 15 states in the
U.S. including California, Hawaii, Illinois, Indiana, Maryland, Michigan,
Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota,
Virginia, Washington, and Wisconsin.
