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Like any business, purchasing a franchise has pros and cons. There are many advantages to buying a well-established brand and business model. However, doing so also has several drawbacks that you should consider before buying a franchise. This article will explore some pros and cons of buying a franchise.
Making the decision to franchise your business can be difficult. This Franchisor Toolkit covers all the essential topics you need to know about franchising your business.
This Toolkit also contains case studies from leading franchisors including leading Australian franchises including Just Cuts, FlipOut and Fibonacci Coffee.
Advantages
Avoid Setting Up a Business
The most significant advantage of buying a franchise is not having to set up a business from scratch. This means you do not need to:
- develop a product or service;
- establish a brand and goodwill; or
- implement your own systems and processes.
Instead, buying a franchise usually means buying an already successful business. Furthermore, this reduces a lot of the burden that comes with establishing a business.
Purchasing a franchise also means you buy established processes and procedures. This means you have access to established:
- systems;
- training; and
- mentors.
This makes it much easier to hit the ground running and ensure that your employees receive excellent training that results in success.
Built-In Brand Recognition
Another key advantage of buying a franchise is buying brand recognition. Finding customers and building brand loyalty is one of the hardest parts of setting up a business. However, purchasing a franchise means you can bypass many of these issues.
In addition to accessing a loyal customer base, purchasing a franchise also allows you to take advantage of marketing and advertising materials provided by the franchisor. For instance, many large franchises advertise their business nationally. So, after purchasing, you will have access to their broad range of customers.
Easier Access to Finances
Financing for a franchise is often much more manageable than your own standalone business. In addition, franchises are often less risky businesses due to their already-established reputation. Moreover, banks are more inclined to support the purchase of a franchise.
Be Your Own Boss
Franchises allow you to be your own boss in a small business while maintaining access to an extensive, well-established business network. Ultimately, you can own a business in a field in which you have very little experience at a much lower risk. Furthermore, you will gain access to the company’s:
- training;
- policies; and
- mentorship.
Disadvantages
Set-Up Costs
One disadvantage of purchasing a franchise is that the initial investment in the business can be high. For instance, this may be the case when you buy into a big-name business. This is because you purchase the business’s goodwill, increasing the initial investment cost. Often, the set-up costs associated with a franchise are exceptionally higher than setting up your own business.
Ongoing Payments
In addition to the high set-up costs of a franchise, another cost associated with buying a franchise is royalty payments. Royalty payments refer to the ongoing fees that franchisees pay to franchisors for the:
- ongoing use of branding materials;
- ongoing training; and
- business support.
Royalty fees may be a percentage of your gross sales revenue or a flat-rate system. These ongoing costs can be significant for franchisees, particularly if you purchase a franchise with low margins.
Franchisor Rules
Another critical disadvantage to buying a franchise is strictly adhering to the franchisor’s operations manual. As a pre-established business, franchisees cannot make changes to the:
- business model;
- brand;
- products;
- services; or
- systems and processes.
There will also likely be a range of limitations on:
- how and where you can establish a franchise;
- the suppliers you can use; and
- even the way you train our staff.
Reputation
Although a key advantage to a franchise is accessing a business’ goodwill, this also has its downsides. Any negative attention on a franchise from another franchisee or the franchisor can negatively affect your reputation. Furthermore, this can potentially impact the success of your business.
Continue reading this article below the formKey Takeaways
While there are obvious advantages to buying a well-established brand and business model, there are also many restrictions and drawbacks worth considering before taking the plunge and buying a franchise. Some of the pros and cons of buying a franchise include:
- franchises have well-established business processes, which makes a franchise easier to start but restricts creativity;
- purchasing a franchise means you have access to advertising and marketing materials, which can be advantageous or can impact your reputation if something goes wrong; and
- while franchises have easier access to financing, the set-up and ongoing costs can be expensive.
If you need assistance deciding whether you should purchase a franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Some of the pros of purchasing a franchise include that you can avoid setting up a business while having the advantage of being your own boss. Further, you also have access to brand recognition and potentially better financing options.
Some of the cons of buying a franchise are the costs involved, including set-up costs and ongoing royalty payments. Further, you must also follow the often-strict franchisor rules. Additionally, any negative attention may negatively impact you or another franchisee, which can impact your business.
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