Not every entrepreneur starts out with a radical new idea that will completely revolutionize an entire industry. In fact, there are a lot of different ways that you can start and run a successful business, even if you’re short on innovative ideas and concepts. One of the most popular of these is buying a franchise. But is it right for you? Let’s take a look at some of the most common pros and cons of becoming a franchisee.
PRO: BUILT-IN BRAND RECOGNITION
While buying a well-established franchise won’t guarantee that you’ll have a successful business, it does eliminate the need to build your brand from the ground up. National and regional franchises have already done all of their branding and have specific marketing tips and techniques available to you to help you get the word out about your location and help you establish yourself there.
CON: THE FRANCHISER HAS THE CONTROL
Starting a business on your own can be intimidating, but it has some distinct advantages, especially when it comes to control of your business. When you buy a franchise, you sign an agreement with your franchiser to follow a certain set of rules for your business. While you control whom you hire, your management style, and other aspects of your franchise unit, you won’t have a lot of autonomy when it comes to marketing, advertising, and how you represent the brand.
PRO: NO NEED TO RE-INVENT THE WHEEL
When you buy a franchise, you basically get a turnkey business that’s ready to go right from the start. You’ll just have to learn the operating system, hire your employees, train them, and open your doors. If you’re unsure about how to start a business and grow it organically, a franchise might be a good option for you.
CON: COST CAN BE A BARRIER TO ENTRY
If you don’t have a lot of startup capital available to you, a franchise probably isn’t the way to go. The initial cost of buying the license for your franchise can be prohibitive for a lot of entrepreneurs. If you have an investor interested in being a silent partner in a franchise, or if you have your own capital to invest in your business, a franchise may still be a good idea. However, most investors will be more interested in original ideas and concepts. After all, if they wanted to buy a franchise, they could simply buy one directly and hire someone to manage it for them.
CON: ONGOING ROYALTY PAYMENTS
Finally, franchisers don’t just make their money by selling franchises. If they did, they’d have to constantly be selling. Then their franchise units would soon saturate the market, and they’d end up making no more money and going out of business. To continue making money, even when they’re not selling new franchises, franchisers charge royalty fees to all of their franchisees.
This means that, as long as you own your franchise, you’ll have to pay a percentage of your monthly gross to your franchiser. With a good franchise, you’ll get brand support and other ongoing services, but those royalty fees can still be a major drag on your profits.
In general, if you have an entrepreneurial mindset but you want the security of an established brand, a franchise is not a bad way to go. However, if you’re willing to take a few calculated risks and start your brand from the ground up, you will almost always see a lot more rewards from your efforts. Consider these pros and cons as you decide whether or not a franchise is the best move for you in your entrepreneurial endeavors.