Running a franchise can be a rewarding and liberating experience.
But what’s in it for the franchisees besides what meets the eye?
Running a Franchise – An Endeavour Worth Undertaking?
Many of us have dreamt of a life in which we are far removed from the financial worries and other worldly problems. Running a business, many think, is the best way to devote your life to something you love without sacrificing the financial security. Thanks to the money it takes to even get started, many of such business ideas never see the daylight. Running a business also seems, to the outsiders, an exercise in immense complexity.
Franchising has risen to the top as a viable, sustainable and mostly successful solution to these problems. But is running a franchise really that attractive an idea? What downsides does franchising have? Do the pros convincingly outweigh the cons?
In this article, we will try to compare the advantages and disadvantages of running franchise businesses.
Advantages of Buying and Running a Franchise
Here are some of the most prominent advantages of buying, running and maintaining a franchise business in the UK.
The hardest thing to come by in a competitive world is an opportunity. People who have little to no business experience find themselves struggling against the current the moment they decide to embark on an adventurous ‘entrepreneurial’ calling. Scores of business ‘gurus’ that preach the culture of entrepreneurship rarely tell us what it really takes – apart from that moment of reckoning – to start and run a business.
From a mountain of paperwork to thousands of working hours, resources of unimaginable proportions are required to just get a business running. The sheer scope of this task puts many people off the idea of running a business. Franchising comes as a pragmatic, attainable and accessible solution to this problem. Intangible yet very powerful, this ability to create opportunities where there were none before is perhaps the biggest advantage that franchising brings with it.
The Brand Magic
While it takes enormous work to make successful a business, time – an asset that just cannot be purchased – is what makes it trustworthy. Businesses can burst onto the scene to become overnight sensations, but it takes years before a customer will buy a product just by looking at their brand.
From Coca-Cola to Burberry, the best brands in the worlds have taken decades to reach there. So, it’s only reasonable for new businesses to not want to compete with that sort of power, recognition and trust.
Franchising eliminates this problem by letting new businesses (the franchisees) use the brand value of the franchisor business.
No Trial and Error
Fine-tuning business operations is a process that never really stops. From minimising the overheads to staying on top of price movements, many factors need to come together for a business to generate consistent revenues. New businesses cannot always afford to wait for years to break even. Therefore, being able to use a proven business strategy, honed to perfection by a successful franchisor, is an invaluable advantage that franchise businesses have.
Troubleshooting and Support
Most franchisors offer regular support to their franchisees. This support includes administrative help, operational guidance, strategy related advice and much more. In short, franchisees have to solve much fewer equations than new businesses.
Lesser Risk Exposure
We, at franchise4u, have always maintained that all business ventures are inherently exposed to risks. Like any capital investment, the extent of these risks ends up defining potential rewards. Franchises are, in no way, immune to failures – and our readers are warned not to believe anyone who claims otherwise. However, it has been a well-documented fact that franchise businesses are much less prone to failures than independent business ventures. In other words, franchise businesses enjoy a relatively higher chance of succeeding than independent businesses.
This also results into more financing options and higher credit limits being available to franchisees.
Not a Waiting Game
Breaking even is the first real goal for any business. Many businesses take years to break even, while many fail to even come close. As a new business – especially with smaller finances – you never want to or can afford to play the waiting game of creating a market of your own, building the trust and steadily secure your revenue streams.
Franchise businesses can help you break even in a relatively shorter period of time. Available numbers suggest that 9 out of 10 franchises break even and start posting profits within the first two years. It’s worth noting that as many as 50% of new businesses tend not to survive this period.
Disadvantages of Buying and Running a Franchise
Buying and running a franchise comes with its set of shortcomings that every would-be franchisee should be aware of. Some of the most notable disadvantages of franchise ownership are discussed below:
As is the case with any industry or market, franchising also has bad actors that you should stay away from. From non-existent business strategies and cooked up numbers to exaggerated revenue promises and multi-level marketing ideas, there are several franchise opportunities that are best left untouched. You can follow our guide to Buying a Franchise to know more about how to carry out due diligence before you put your money at stake.
Fees, Fees and Fees
While not entirely unjustifiable, fees can really skew the balance of franchising in favour of the franchisor. From the initial franchise fee that you need to pay upfront, franchisees are required to pay ongoing royalties, management fees, servicing fees, stocking fees, renewal fees and other contract-specific fees. Thus, it’s essential to know what terms and fees you are signing up for before you finalise the Franchise Agreement.
Not ‘Your’ Business
The predominant motivation for many people to buy and run franchises is the independence it grants. But this independence comes with certain caveats. Despite ‘buying’ franchises, franchisees never really ‘own’ them. In addition, all the business strategies are drawn, changed and executed as per the franchisor’s discretion. Franchisees have little to no say over major business factors such as advertising, location, price and operations.
Hence, franchisees should know that their entrepreneurial creativity and desire to lead the business may, to some extent, be stifled in a franchise setup.
Franchising, even though not exactly you ‘own’ business, still requires you to put the hard work in. Certain franchises (restaurant and retail franchises, for example) need the franchisees to be ‘on the job’ for much of the day. This inevitably takes its toll on your health, relationships and social life if you are not used to such a hectic lifestyle.
Making the Right Decision
The discussion around the pros and cons of buying and running a franchise boils down to the fact that if you choose a franchise opportunity that’s suitable for you , there’s every realistic chance of turning it into a successful endeavour.
You may also want to read our Running Your First Franchise guide to get an insight into what it takes to commence the on-ground operations after buying a franchise.