Franchise Business: Pros and Cons
Nowadays, franchising is becoming increasingly popular all over the world. And this is quite natural, since the franchise business is a proven and rather convenient business model, especially for start-up entrepreneurs, since it guarantees the return of funds invested in the development of such a business. Among the most striking examples of successfully developing franchise businesses are, say, Starbucks and McDonald’s.
But before you decide on the purchase of a franchise business, it is advisable to weigh in detail all its advantages and disadvantages.
The advantages of the franchise include:
Brand awareness
Franchise businesses are popular and famous for their presence in the international arena. And, as a rule, when buying a franchise, there are no problems with attracting customers, because potential consumers are already familiar with the brand and the quality of the goods or services provided.
Minimum marketing costs
Marketing costs will be insignificant, as the franchisor has already significantly invested in marketing operations to promote its brand and take a significant market share.
Tested business model
Franchise business eliminates the lack of confidence in the success and profitability of a business project. Adhering to this business model, there is no need to worry about the demand for your products or services among consumers.
Training
All franchisors provide training programs for your staff to acquire skills in working with sophisticated equipment. They also provide training in the specific professional skills needed to work in this particular business. Thus, there is a savings that you would have to spend on staff development and training.
Technical support
Franchisers help with technical support of the business, providing easy access to the purchase of the necessary equipment, tools, raw materials, using their preemptive right to enter into transactions on favorable terms and former business contacts with suppliers.
No research and development costs
First of all, the franchisor himself is interested in the development and prosperity of the business, so he takes care of conducting all the necessary market research and providing the necessary training and equipment in order to learn and introduce innovative experience into the business.
In addition, some franchisors can provide loans for starting a business, which certainly implies a number of financial obligations on your part.
At the same time, the purchase of a franchise has a number of drawbacks, including:
Capital investment
When establishing a franchise business, you may be faced with the fact that franchisors are claiming initial investments to provide certain guarantees that may not be entirely feasible in the event of a lack of financing on your part.
Temporary restrictions
Buying a franchise involves a contract with the franchisor, according to which he officially obliges you to manage the business for a certain period, before which you cannot open your own business.
Lack of flexibility and adaptability of business
You need to be prepared for the fact that franchisors will be against any independent changes and innovations on your part.
Royalty payment
For the right to use a well-known brand name and to receive technical and marketing support, it is necessary to make appropriate monetary payments annually, that is, to pay royalties for the use of a franchise.
Absolute openness
You will be forced not only to provide the franchisor with 100% access to all financial statements of a business, but also to coordinate with it every business decision.
In addition, some franchisors may require payment for the right to enjoy the benefits of their marketing and advertising policies. In this case, such payments are inevitable.
Franchise significantly reduces the risks associated with doing business. But, nevertheless, before you start a franchise business, it is recommended to weigh all the pros and cons and conduct your own market research. At the same time, a franchise business will be the best option for entrepreneurs who do not have enough knowledge and skills to conduct business. And, as statistics show, such a business model has more chances for success in comparison with an individual business.
