If you are considering starting your own small business then buying into a franchise operation may be a good way to go, especially if you have no previous experience running a business.
While many franchisees struggle to make a living, they are at least able to essentially buy themselves a job and have some control over their own destiny, which is quite an advantage to being employed by a public corporation these days.
But the franchise world has become big business these days and like any other occupation, it can be fraught with challenges and the majority of small franchise operators will be destined to invest their life savings only to find themselves out of business after a year or two.
So, how can you evaluate whether a franchise opportunity is right for you? Read on to learn the pros and cons of starting your own franchise business.
Pros of Franchise Businesses
- The Franchisor can provide you with a brand, a business system and the support of a major corporation.
- You should get training, tools and support necessary to run your business successfully.
- Start up costs and time to profitability can be lower since you are essentially expanding an existing business versus trying to start from the ground floor.
- You get the buying power of a large corporation, established supplier relationships and an existing supply chain; all things that small business operators find increasingly challenging in today’s era of super power big box retail and services corporations today.
- You get the benefit of a proven business plan; the franchisor will already have done the important work of proving a business model for you!
Cons of Franchise Businesses
- Your startup costs will be higher since you have to pay up front licensing fees and an ongoing percentage of net revenue to the Franchisor.
- In most cases you will also have operational restrictions dictated by the Franchisor, which can limit your ability to expand into opportunities you see as your business develops. Some operators find the plug and play business model makes life easier while other, more entrepreneurial operators often find it too confining to expand and grow their businesses in the long term.
- You could find your business declining because the Franchisors and/or other Franchisees aren’t successful or the brand suffers from a calamity such as food poisoning or customer dissatisfaction; remember that you will be “guilty by association” even if your operation does well while the overall franchise operation may not. Choose your Franchisor very carefully!
- Unless you are successful enough to operate multiple store locations and build a “chain within the franchise’s chain” you may find your ability to grow and expand the business is limited. Most single store operators work extremely long hours and find the net profit left over for them is not that large compared to the amount of work they put in.