Franchising offers a lot of potential for people looking for success, but there are several aspects of franchising model that some may see as a drawback too. Anyone that is thinking of getting involved in a franchise should have a solid understanding of all the pros and cons before making a commitment. In this guide, we’re going to take a look at the advantages and disadvantages of franchising. Read on to discover what they are and how to approach them. Every franchise is different, of course but these situations tend to be common across all franchise businesses, regardless of industry.
There are plenty of benefits of working under a franchise name. You will have a lot of security for your enterprise, not least because you are following a tried and tested format. It's one that you already know appeals to people. Compare that to starting out with a brand new business and brand? You will have a national - and international - reputation, which almost guarantees people through the doors or the enquiries flowing in at a steady rate. All you have to do is uphold your end of the bargain and give people the service and products they expect of a business under that brand name.
It’s not just the name that matters with regards to franchises. It’s a way of working that brings success, too. Franchising gives you the opportunity to draw on tried and tested business practices that have been refined over some years. Systems and processes are in place already so it’s a case of following the systems you’ve been given. In comparison with starting an independent company, that’s a lot of hard work that you won’t have to go through. One of the most difficult things for small independent businesses that are growing is developing the structures and systems that allow for smooth expansion. With a franchise this challenging process has been taken care of for you allowing you to concentrate on delivering customer satisfaction.
Don’t think for a second that owning a franchise is copping out of owning your own business. In many ways, it is the same. Sure you will have help, support, and backing - more on that later. But, you will be running the show day to day just as you would be in an independent business. There will be expectations to meet, of course and this can be challenging. Whilst you may own and run the business you do not have complete free reign and there is a level of accountability you need to be aware of. But, these are just successful ways of working. All businesses use those, regardless of whether they are intuitive or direct from a head office.
There are a lot of costs involved in growing a business from scratch. And, one of the biggest of those will be the cost of training and support. All companies need the best people to thrive, and with a franchise, the franchisor will give you all the help you need. You will have staff training sessions to make sure everyone is up to speed before you open. You will get access to successful IT systems, and methods of working. And, of course, you will be able to take advantage of the sheer scale of orders that franchisors make for supplies. This will lower your running costs, and gives you a much bigger advantage over smaller competitors. Of course, franchising isn’t without its problems. There are plenty of issues that can stand between you and success - let’s have a closer look at some of those now.
Buying into a franchise can be expensive, and you will need significant investment to make it happen. In certain industries, a successful franchise will set you back millions for the right to trade under a franchise name. There are cheaper alternatives, of course - some smaller franchises can cost as little as £5-£10,000. But, you can expect to pay somewhere in the region of £5,000-£25,000 for the vast majority of opportunities. There will be ongoing fees to deal with, too - including royalties. These typically range from 4% to 7% - but can be higher or lower, depending on your situation. Be aware of not just the initial financial commitment but all the ongoing financial obligations running a franchise may involve.
Because of those high costs, it’s vital that you are committed to the project. If you decide that you don’t like the business, after all, it can be difficult just to walk away. You can expect to work long hours - just as you would in your own business. You will also need to face a year or two of running at a loss - just as other new companies do, too. There will be a lot of hard work ahead, so don’t think you can sit back and let the franchisor do all the hard work for you!
Another problem you might have is managing staff. If you have no experience of management, this can be a baptism of fire. As a rule, you will find that franchises operate with a high turnover of staff, and pay at levels close to minimum wage. This isn’t always the case, of course - but you should be aware of the problems it can bring. Low pay means lower quality staff - and people that aren’t as enthusiastic as you are about the business. How will you motivate them, and how will you deal with the high turnover?
Of course, while running a franchise is similar to running a business, there are key differences. The biggest, perhaps, is that you won't have the freedom to make your own choices. Fancy extending your restaurant to fit in more customers? The franchisor may not like it. Don’t like the current decor? Tough. Some franchisees will chance their arm and change things, of course. But, if you push too many of the wrong buttons, you can expect a termination of the contract.
Some sectors of industry are enormously competitive and that can cause a big problem for franchises. Just because you work under a famous brand name doesn’t mean you are going to clean up in your local town or city. You often hear about franchises moving into an area, and not making the grade, because the locals prefer independent products. No matter how much you research, you may not understand these little nuances until it’s too late. However, by going out and doing some proper research, it’s possible to minimise your risk. We hope you have got something out of our article on the pros and cons of franchising. As you can see, there is a lot to think about. However, understanding what might lie ahead will give you the chance to get things right before they become a problem. Good luck!