While there are many clear advantages to be had from hopping into bed with a well branded franchise, this business model is not without its disadvantages. In this article we’ll explore some of the benefits and drawbacks when you go down the franchise route.
Franchising – The Advantages
- Piggy back on a brand name. Decades – that’s what some franchise brands have taken to create, and franchise owners can leverage a household name when they buy into one of the more famous franchises. People are just naturally more comfortable in buying from familiar brands – be honest, who are you more likely to get a pizza from, “Uncle Bobs Pizza n Kebabs” or Dominos Pizza? It’s almost certainly the latter – franchising gives you the power and familiarity of a huge company without spending millions on branding yourself.
- Follow a proven blueprint. There’s no sketching about, constantly tinkering trying to find a business model that works. A good franchise will have done all the ground work for you, so you’re left with a core of a business that is efficient and streamlined. In reality, you would have to work long and hard to build a business system that does this by yourself.
- Support & help provided. Good franchises will provide tailored support to franchisees. Often, the franchise fee will include support and training programs so that the franchise owner can get off to a running start. This is in the franchises own interests – the concept of a franchisee making a mess of one of their stores and ruining their brand strength represents a risk, so support and training are usually very well provided for.
- No turf wars. Territories for each franchise are very clearly defined. This means there is no risk of another identical franchise opening up opposite the road.
- Easier access to finance. Banks might well see startups as a risky punt, especially in recessionary times. However, a popular franchise is likely to be seen as far less of a risk than a general startup by your local bank manager – so you might find it easier to finance your own business via the franchise route than if you were to go it alone.
Franchising – The Disadvantages
- High costs. Franchising is an expensive business model to adopt. There are likely to be both initial as well as ongoing fees that can slice deeply into your profit margins. Depending on your choice of franchise, and how strong the brand name is, the cost to buy into the franchise can be tens of thousands of pounds (and more at times). In addition to this, the franchise will also seek to take a cut of your revenues (not profits) which can be brutal if your franchise doesn’t make much money.
- Rigid structure. As the owner of your own business, you’re free to take your company in any direction you wish. As the owner of a franchised outlet, you’re bound by the franchises terms, conditions, rules and policies. There can be harsh penalties if you trespass over the franchise operating terms, including the termination of your contract.Bad decisions by the franchise can sink your business. Ultimately, many big decisions regarding your outlet will be made by HQ – without you having an iota of control over them. This means that bad decisions at the very top could cause serious problems for your business – and this is outside of your control.