Buy a Franchise

There are the pros and cons to buying a franchise versus starting from scratch or buying an existing non-franchise business.


What is Franchising?

A franchise is a right granted to an individual or group to market a company's goods or services within a certain territory or location. The franchisor (the company owner) sells the rights to the franchisee and then typically receives a fee for ongoing support, therefore giving the franchisor a vested interest in the success of the franchise.


Pros to Buying a Franchise

  1. Lower Failure Rate   
    Franchises have a higher success rate, since applicants are pre-screened and a use a proven business formula. The products, services, and business operations have already been established. Franchisees have an 80 percent success rate, much higher than starting a business from scratch.
  2. Easier to Finance 
    Bankers usually look at funding a franchise of a successful business more favorably because they have a lower risk of repayment default.
  3. Turnkey Operation
    Most franchises offer a turnkey operation, with equipment, supplies, etc. making it easier to get started.
  4. On-Going Support
    In an effort to help the the franchisee succeed, the franchise companies usually provide on-going training and support, including management assistance.
  5. Recognized Company
    Company image and brand awareness are already recognized. Consumers are more comfortable purchasing items they are familiar with and working with companies they know and trust. When you buy a franchise business, you are accessing a built-in customer base.
  6. Marketing Assistance
    Most franchises offer the benefit of national, regional, or local marketing campaigns.
  7. Buying Power
    With the benefit of the franchise's collective buying power of inventory and supplies, purchasing costs are less than if you were running an independent company.
  8. Profits
    A franchise business can be immensely profitable. One does not need to reinvent the wheel, but be part of a winning team.

Cons of Buying a Franchise

  1. Less Business Control
    Franchisors usually require franchisees to follow their operations manual in order to ensure consistency. This may limit creativity on the part of the franchisee and may be limiting to entrepreneurs with their own vision.
  2. The Cost of Buying a Franchise Can Be High
    You pay for all the franchisor sells.
  3. Initial Franchise Fee
    There is a fee to purchase the franchise and in most cases it is higher than the cost of starting a business from scratch.
  4. Ongoing Costs
    Paying monthly royalties to the franchisor may cut into your profits
  5. Additional Fees
    The franchisor may also charge additional fees for services provided, such as the cost of advertising.
  6. Ongoing Support
    Varies, not all franchisors offer the same degree of assistance in starting a business and operating it successfully.
  7. Not All Franchises Worth the Investment
    Buying a little-known, perhaps inexpensive franchise can be a gamble. There is no guarantee that the franchise you buy will be successful.
  8. Loss of Franchise
    One can lose the right to their business if the franchise contract is breached.
  9. The Risk of Non-renewal
    Renewal of the franchise contract is not typically guaranteed.

One of the biggest mistakes you can make is to hurry into business. So it is important to review the pros and cons of each business start-up option, and make sure that the business you are exploring fits your needs, experience, and financial capacity.