Weighing The Pros And Cons Of Franchising

pros-cons

Going into business for yourself is a major life decision that comes with a lot of choices. You can start your own business, buy an existing one, or buy into a franchise. Each comes with it’s own unique benefits and inherent risks. Then there’s the matter of what kind of product or service you want to provide.

Your interests and passions are of course important, but more importantly, you have to pick the business model that works for you. You may enjoy coffee, but that doesn’t mean you will like running a quick paced coffee shop at the crack of dawn. You may like surfing but that doesn’t mean you’ll like giving beginning surf lessons to pushy tourists all day. You need to find a balance between a product or service that you’re passionate about and a business model that suits your lifestyle, working style, and idea of success.

To figure out if franchising is right for you, it’s important to weight the costs and benefits for yourself. Every person is different, and what works for your neighbor may make you absolutely miserable. Your business decision needs to be based on your individual circumstance and preferences. Do you like following a prescribed system or do you prefer having the freedom to innovate and experiment? Do you have enough startup capital to try a few things out or do you need to see quick ROI? Do you work well as both a leader and a follower or do you need total control? Here are some of the most important pro’s and con’s of buying into a franchise.

Brand awareness

Pro: When you’re starting out, no one knows who you are. A huge pro of franchises are the fact that they come with built in brand awareness. Right when you open the door, you’ll have fans and you’ll have haters. The point is, people will already know who you are and be ready to buy.

Con: You’re buying a brand, which means you don’t get to create, define, or alter it. For creative types, this can be a big deal breaker, as creating a brand can feel like a huge part of what makes their job engaging.

Control

Pro: With a franchise, you still get to control the day to day operations of your unit without having to figure everything out on your own. You’re the boss, but you also have resources from your franchisor.

Con: When you start your own business, you get to control every detail, large and small. While the responsiblity is huge, it also means you can make changes and updates on your own accord. As a franchisee, you’re agreeing to follow the guidelines laid out by the franchisor. You’re contractually obligated to follow someone else’s rule book (a rule book that has proven successful, but not one you created or control.)

Learning curve

Pro: When you start a new business, there’s no telling if or when your concept is going to actually work. With a franchise, you’re buying a tested and proven business model. You’re essentially getting a “plug and play” business. Just follow the operating manual, and you’re golden.

Con: While figuring out each step on your own can be difficult and unpredictable, if you enjoy creating things from the ground up, innovating on processes, and adapting as you learn, this can be an engaging and even thrilling experience. It might take longer to get things off the ground, but it’s also arguably the most creative part of the business process.

Equipment and supplies

Pro: Outfitting your new business with the proper supplies, equipment, and suppliers can be both timely and costly. Franchisors are an invaluable resource for buying exactly what and how much you need, right from the get-go. You’re franchisor can also negotiate bulk rates and pass along the savings to you, and having the power of a recognized brand behind you often eases the mind of suppliers in extending credit.

Con: Usually what you buy is dictated by the franchise, so again, there’s not much room for adding any “personal touches.” Equipment, menus, uniforms, and store design have to fall under existing brand guidelines and supplier agreements.

Financing

Pro: Most franchisors won’t supply financing, but they have existing relationships with lenders who will view a brand referral more favorably than a first-time independent business owner.

Con: Starting your own business can cost less up front than buying into a franchise, depending on the nature of the business and how much you decide to put into it. Entrepreneurs often get by on a minuscule budgets starting out and still succeed.

Marketing

Pro: If you’re a franchisee, most likely your brand is already backed by big marketing and advertising (regionally if not nationally). If you’re a new business owner, you’re on your own.

Con: As a franchisee, you will probably have to contribute monthly to that big advertising fund, but at least everything is already in place.

Product/service changes

Pro: Introducing a new product or service that flops costs business owners both time and money. When franchisors develop new products, they’ve usually been thoroughly tested by other stores and iterated on to ensure that it’s a valuable offering. While it may cost franchisees some money to install new equipment or introduce a new store design, ROI is relatively more guaranteed.

Con: You may not like every new product or service that gets introduced. You might feel like you have a better idea that you can’t implement. It may come at a time when your location is low on funds. You don’t have much of a choice when it comes to how the franchise evolves over time.

Culture/fit

Pro: It’s especially important when buying into a franchise to make sure your goals and values align with your franchisors. If you’re on the same page, you can have a positive relationship that helps you and your business thrive.

Con: When you own the business, the only person you truly have to get along with is yourself (and hopefully your customers and employees.) You’ll frequently hear franchise experts describe the franchisor/franchisee relationship being like a “marriage.” Like any marriage, if the relationship sours, it can create a miserable situation for everyone involved.

Exit strategy/resale value

Pro: With a known brand, your pool of potential buyers is much larger than a small, relatively unknown business. If times are tough and you’re having trouble finding a buyer, there is always one guaranteed buyer (the franchisor) who can buy back your unit until they find a new franchisee.

Con: Selling an independent business can be much more lucrative. But, your pool of buyers is generally smaller, and if things get really bad, you may not be able to find a buyer at all.

Other pro’s to keep in mind:

Speed to market – With a franchise, you are given a list of exactly what you need to open. No research, returns, or bad purchases necessary. This means you can open and start making sales much more quickly.

Faster ROI – There’s no telling how long it will take a new brand to build up the reputation and client base it needs to turn a profit. When you’re working with a known brand name, a customer base comes built in, which means you can reach a profit more quickly.

Training – One of the greatest benefits of being a franchisee is that you always have a go-to resource for how to improve your business. Franchisors provide extensive training in every aspect of their business as well as ongoing advisement for growth. You don’t have to figure it all out on your own.

Ultimately you have to be the one to decide what kind of business model works for your specific interests, personality, and passions as well as your own financial obligations, financial resources, and future goals. Carefully considering exactly what you’re getting yourself into will allow you to be much more successful than someone who jumps in without fully understanding what it means to be a business owner or franchisee.