Franchising: The Advantages and Drawbacks

 

 

Starting a business from scratch requires a great deal of knowledge, commitment, and sacrifice. On top of running the day to day aspects of a business, new customers need to be found and marketing and brand-building is a time-consuming and expensive process. 

 

As such, many small businesses do not succeed. Even those that do eventually succeed often go through periods of loss, breaking even or low profit margins. If there are no contingency funds or back up during these critical periods, the business may well fail. Franchising offers a more secure way to build a business and a higher success rate. For this reason, banks are more willing to lend to fund the purchase of a franchise than building a start-up.

 

In contrast, with a franchise the business is already established and the products or services are recognized; there is already a customer base, so much of the hard work is already done. The franchisee simply needs to follow the business model and customers will (in theory) come. The franchisee may also benefit from national and regional advertising. 

 

 

Part of the advantages of franchising lies in its support network. Because the franchisor has an invested interest in the success of the business, they will have purchased premises in a good location away from rival franchises. They may offer excellent training and ongoing support, with the opportunity to gain crucial insights into the industry that may not be possible otherwise. So while owning a franchise offers a degree of freedom and independence that employment may not, the franchisee is by no means alone.

 

Because the franchise is part of a larger business model, the franchisee can also benefit from economies of scale, bulk purchasing and correspondingly competitively priced goods or services. This offers them a huge advantage over start-ups who may be forced to raise prices just to cover costs, making them uncompetitive in the process.

 

 

However, there are drawbacks to choosing a franchise rather than building a business from scratch. With most franchises, there is not the same freedom to choose specific products or services, or to build a business and brand organically. And while there is immense opportunity for taking satisfaction in the success of a franchise it may not occur at such a personal level. 

 

On a day to day level, there is not as much creative freedom afforded by owning a franchise, and it is possible or probable that the franchisee may have to purchase certain items, offer certain services, run mandatory promotions, follow franchise procedures when it comes to management and HR, and generally act in accordance with the overall values of the franchise. Not doing so may result in the contract being terminated.

 

If this is a deal breaker, keep in mind that many franchisors encourage feedback, suggestions and active involvement from franchisees, so it is possible to feed creative impulses within a franchise network.