Should You Buy A Franchise?

Many entrepreneurs are adamant about getting a successful business in place right away. Rather than starting from scratch, some enthusiastic entrepreneurs simply go with a proven business model by investing in a franchise.

A franchise is a business with a proven operational and marketing model, one with a regional or national customer base already in place, but is a privately owned and operated business. The most popular franchise examples are McDonalds or Subway, but also non food-related companies like UPS Stores, Super 8 Motels, and Curves for Women.

What are advantages of buying a franchise?

  • Name recognition. You get the rights to market and sell a popular and trademarked product or service. Franchises usually come with an established market base.

  • Training and setup help. Your franchise investment usually comes with help from the parent company who helps you set up your place of business, trains you and your staff, and provides you with a set business model to follow.

  • Financial support. Some franchises may also help finance your franchise purchase. You may still have to qualify with your own outstanding credit history and net worth.

  • Other support. The parent company also will help you find the right suitable location, help with equipment purchases, and even provide you with the marketing materials you need.

  • Greater chance of success. A new franchise usually lasts longer than the typical one-year for most small businesses. Your success is never guaranteed, however.

Of course, a franchise is not all roses. There are disadvantages too.

  • High costs. Buying a franchise requires a substantial investment. The upfront costs can be hundreds of thousands of dollars, and ongoing royalties can take away a substantial portion of your profits.

  • You must already be ‘successful’. Do note that parent companies only choose franchisee owners who already have a high net worth, a substantial balance sheet, and the best credit.

  • Lack of control. A franchise owner is expected to follow the provided business model. There is usually little room for creative variation. Your location, signage, advertisements, even the hours of your operations may be dictated by the parent company.

If you are interested in a franchise, do your research. Find out the qualifications, benefits, and restrictions of operating a franchise. With the right attitude and financial investment, a franchise can be the road to success for many entrepreneurs.

2 COMMENTS

  1. As someone who provides training to many franchises, I think one of the most important things to be aware of if you’re thinking of buying a franchise, is what you will do and what skills you will need to market the business locally. All too many franchisees are under the misperception that they need do nothing more than rely on the franchise brand for customers to arrive at the door. While you will pay a marketing levy of some kind, you need to understand that that fee is designed to promote the brand and conduct high-level marketing. It will be your complete responsibility to find local customers in order to grow your business. High level marketing relies on trying to appeal to the masses, but customers have different buying habits in each market, so you need to understand what your local customers’ habits are and market specifically to them. This is often referred to as guerrilla marketing or local area marketing. Done correctly, it’s very inexpensive, innovative and attention-grabbing.

    If marketing is not currently one of your strengths, get some training or start to read up on the subject – it’ll be the difference between success and mediocrity, I promise you.

  2. Hmmm… I’ve always wondered what requirements went into owning a franchise and from reading this is seems like the disadvantages are pretty substantial. Especially the fact that you have to payout substantial royalties and you have really no control over the business since it does already have a set model. But I guess it would be worth it if your franchise has an amazing ROI.

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