5 pros and cons of franchising

By Nick Hall | 04 Nov 2019 View comments

If you dream of getting into business for yourself, there are a multitude of opportunities on offer, each with their own pros and cons. For instance, you may have ideas to go it alone as an independent operator, or perhaps the franchising route tickles your fancy.

Franchising is a model that is designed to help entrepreneurs take the leap into business ownership. It provides the set structures and process to streamline the entry into entrepreneurship. However, like all business models, franchising is not without its flaws; it is a specific model that provides a rigid framework in which franchisees can operate.

Consider if franchising is right for you. This five-step check-list of franchising pros and cons can you make sense of your decision.

Pros

1. Established brand

One of the most challenging aspects of starting a new business is building a dedicated and loyal customer base. By joining a franchise, you can play off the chain’s established clientele, while providing a service that the customer already knows and loves.

2. Support

Starting a business is more than just slapping an ‘open’ sign on the door. A vast majority of your time will be spent researching and analysing difficult documents and business processes.

For this reason, a number of franchise brands will provide extensive support on pre-opening activities, such as site-selection, design and a grand opening support team.

3. Marketing advice

Once the doors are open and it’s time to get people in-store, marketing becomes a key factor, however for amy new business owners, it’s also one of the most challenging.

Most franchisees will pay a marketing levy to their franchisor. This will ultimately go towards a series of branded local area and national marketing campaigns that will help to boost business.

4. Training

If you’ve ever thought of entrepreneurship as an opportunity for a career change, franchising is definitely a proven method.

It is very difficult for someone with no industry experience to build a successful business from the group up. However, with franchising, the franchisor provides an intensive training program from the outset, and in many cases, an ongoing training regime for existing franchisees.

This can help you get up to speed on whatever the core competencies of the job may be. From making coffee to mowing lawns, there’s a best practice for everything and your franchisor should be there to show you how.

5. Collective buying power

Becoming part of the franchise network grants you access to the franchisor’s established relationships with suppliers. You may be able to order and purchase products for far less than if you were to establish an independent operation.

Cons

1. High investment

For all the model’s benefits, investing in a franchise can be expensive. Big name brands are often backed by big investment costs. Remember, you are paying to leverage a brand name that the franchisor has spent years building, the costs are usually reflective.

2. Set structures

If you are ready to shake your business with a list of crazy ideas and innovative new procedures, you might find franchising is not for you. That isn’t to say franchisors will not listen to your ideas and advice, but rather that the model exists for a reason.

In franchising, the structures are set and the processes refined over years of operation. Every aspect of the business model exists to streamline the operation and ensure consistency of quality. If one sole operator chooses to extend outside those boundaries, it may have wider implications on the whole network.

3. Fees

Like investment costs, franchises will come will fees. This may be in the form of a marketing levy as mentioned above, or in other ways such as a franchising fee or royalty fee. It is critical that you factor these fees into your cash-flow projections.

4. Accountability

As an independent operator, your destiny is very much in your own hands. If you chose to shut up shop for this week, that is your decision. In a franchise however, there is a level of accountability pressed on every member of the network.

Most franchisors will supply a business development manager to oversee your operation, making sure that cash-flow is where it should be and that you aren’t slipping into bad habits.

5. Risk

This is not an exclusive condition of franchising. There is an element of risk in any business venture, it is critical that you understand that franchising is not a sure-fire ticket to financial success.

Franchising final thoughts

Before you sign any agreement, make sure that you invest in legal and financial advice. It isn’t enough to consult your family, you must get industry-specific information.

On a personal level, take the time to really assess your own goals and ambitions. This will help you determine if entrepreneurship is right for you and whether franchising or independent operation is your best bet.