To Buy Or Not To Buy – Taking On A Franchise Versus Going It Alone

 

Published Sept. 25/18 in Forbes

Type “Start your own Business” into Google and not only will an overwhelming amount of business start up information and advice appear before your eyes, but you’re also likely to be bombarded with details about a myriad of franchise opportunities to explore.

Buying into a franchise can be seen as a shortcut to business success and, as a franchisor myself, I am of course a huge advocate of the benefits of franchising opportunities – if the correct research and due diligence has been done and franchisor and franchisee are a good match for each other.

But for anyone considering taking the first steps towards launching their own enterprise, what are the advantages and disadvantages of buying into a franchise opportunity with an already established brand versus striking it out on your own?

Advantages

  • By becoming a franchise owner, the franchisee will own and run their own business but have the advantage of ongoing support from the franchisor and the existing franchise network
  • Joining a brand with an established reputation and track record can assist with customer confidence at the outset, even if the franchisee is launching the franchise branch in an area where the brand is not well known
  • All of the hard work in terms of processes, procedures, market testing and so on will (or should!) have already been done by the franchisor – and the potentially expensive mistakes hopefully have already been made!
  • The franchisor should provide everything needed – including necessary training – so that the franchisee can be up and running and earning money from the business quickly
  • A franchisee will benefit from overall marketing initiatives and business development strategies put in place by the franchisor
  • It may be easier to secure funding for a franchise than it is to persuade lenders to provide funding for an independent venture
  • Being part of wider franchise network can give a business owner the ability to compete against bigger businesses, more so than if operating as a small independent business
  • The support from other franchisees within the business can be invaluable – sharing ideas, advice and working together. This may suit individuals who are daunted at going it alone and personalities who thrive on working as part of a wider team.
  • In terms of basic math, it may turn out to be the case that the cost of purchasing the franchise is cheaper than the start up costs were the business to be launched independently
  • The rate of business failure is generally lower with franchises than independent start ups.

 

Disadvantages

  • A franchise agreement is by its nature a strict legal agreement, placing obligations on both franchisor and franchisee. This will restrict the way that the franchisee can run and develop the business – geographical restrictions, what or how the product or service is delivered, pricing and so on.
  • Some franchises may dictate where the franchisee purchases all products or services from
  • The brand’s reputation is dependent on the performance of the whole franchise network. Other poorly performing franchisees may impact on the franchisee’s own business
  • There are ongoing fees associated with a franchise, meaning that the franchisee is likely to end up paying a percentage of profits to the franchisor
  • Some individuals will find the franchise monitoring process intrusive
  • Again, it’s time for some basic math. With some franchise opportunities, the cost of purchasing the initial franchise is much higher than the costs would be if the business were to launch independently
  • If the franchisee’s circumstances change, he/she wishes to sell or to leave the business for whatever reason, there are likely to be termination clauses with financial implications
  • At the end of the franchise term, the franchisor could decide not to renew
  • There are likely to be restraint of trade conditions on sale or termination
  • The franchisee would be at risk if the franchisor were to go out of business