The dream of many is to have their own business and be their own boss. The freedom of not punching a clock or having someone constantly looking over their shoulder with critique and reviews.
The first step in starting a business, however, is to decide exactly what product or service you have to offer. There is a tremendous amount of work that goes into the planning stages before you ever actually make that first sale.
For those wanting both the freedom of their own business, along with the expertise and backing to help and support them, a franchise opportunity may be just the right fit.
However, before you jump into buying a franchise, you should understand both the negative and positive sides of this investment.
Let’s take a look at franchise pros and cons.
What Are the Different Ways to Start a Franchise
Not all franchises are created equal. There are a few different types and when considering if this is the best route for you, it helps to be aware of them.
Job Franchise
This type of franchise has the least financial investment and can sometimes even be done solo or with few employees. It mostly consists of a home-based business with limited inventory or equipment.
An example would be cleaning services, cell phone repair, food/beverage truck, or event planning.
Distribution Franchise
With this type of business, the franchisee (you) is responsible for the distribution of the franchisor’s licensed or trademarked product. This type of arrangement usually allows you to set up your own business plan while you sell a known commodity.
The businesses that fall under the category are car dealerships, gas stations, tire suppliers, appliances, and food or soft drink distributors.
Vending machines also apply to this type of franchise and can make buying a franchise an affordable and rewarding possibility.
Business Franchise
This is the most common and well-known example of a franchise. It is the complete package where the business plan and marketing systems are already set in place. These businesses include restaurants, fitness centers, major retail, and fast food.
Conversion Franchise
This type of franchise is what some small business owners hope will happen. In this scenario, the small business converts into an established franchise in the same industry. They pick up the name recognition and marketing strategy while expanding on their own customer base.
Some common examples are florists, home-based services like electricians or plumbers, or real-estate brokers.
The Benefits of Owning a Franchise
There is certainly a positive side to taking the step to buy a franchise. Here is why.
A Solid Business Plan
As mentioned above, the planning stage can be the most time consuming and brutal part of a start-up business. The market research, the testing, the tweaking of the business product or model.
An established franchise has already done this hard work for you. They have a proven business plan just waiting for you to use.
A Known Name or Brand
It can be fun to sit around and think of witty or interesting brand names, but if no one has ever heard of it before, it can take a long time and hard work to become a household name. Being connected to a known brand is a huge boost to your new business.
This is a great benefit of a franchise. You have immediate name recognition and your customer base will already know what to expect when they walk through your doors.
A Marketing Strategy
It doesn’t matter how great your product or service is, if no one knows about it, you will quickly fail. Having an effective marketing strategy is the key to long term success.
Advertising trends come and go, but when you are part of a franchise you will use their expertise and proven campaigns to further your business along. You will also benefit from any nationwide marketing they put out.
Financing Benefits
Obtaining a small business loan is no easy task. The paperwork is extensive, and there is still a big chance you will not be approved.
One good reason why to buy a franchise is the benefit of easier financial approval. The Small Business Association has dedicated funds set aside for franchise opportunities. When you apply for a loan with a franchise name on your side, you have a better shot at the money you need.
The Downside to Owning a Franchise
For all the positive aspects of a franchise, there are also a few that are not quite so appealing. Let’s take a look at the cons.
It Is Not Your Rules
When thinking of running your own business, most people say making their own rules is a huge reason. However, when you buy into a franchise, the rules are still not yours to make.
You will sign a contract that binds you to the regulations, rules, and objectives of the franchise. You cannot deviate from those even if you believe you have better ideas.
Higher Start-Up Costs
While there is higher value in an established business plan and recognized brand, those things translate into higher start-up costs. You are paying for the work that someone else has already done. While financing is available, you will need to be prepared for a large investment.
Speaking of investment, you will also need to take into account the royalty payments that will be required. This is an ongoing part of the agreement.
The Contract Agreement
You should be careful to read the fine print on any franchise agreement. You are bound by the contents and breaking any of the parts can cost the business.
You should also be aware of the exit clause because sometimes getting out of a franchise is harder than getting into one.
Franchise Pros and Cons — Is It a Good Idea?
Everyone who wants to own their own business has many options. The idea has great rewards and great risks. One possibility is always buying into a franchise.
Understanding franchise pros and cons will help you make the best decision for your financial future.
For more information and help when it comes to all things related to your business, please continue to check out our website.
