Pros and Cons of a Franchise

Advantages

• There is a lower risk of failure than for an independent business because you are offering a service or product that already sells successfully. To predict the potential of your franchise, consider the number already operating under the same name, the number that have failed and the length of time the franchiser and its franchisees have been in operation.
• A much-quoted catchphrase in the franchising sector is “you’re on your own, but not alone.” The franchiser will offer training and the benefit of its experience, offering advice every step of the way.
• You will also be offered continuous management assistance with accounting, personnel, facilities and so on.
• Franchisers develop, refine and set in place operational standards that help ensure a consistent level of quality. Most franchisers help their franchisees develop a market plan, with some parts being procedures to guarantee uniformity throughout all the branches and others being suited to the needs of the individual franchisee.
• Regional and national marketing is prepared and disseminated by the franchiser through experienced advertising businesses. And the franchiser can offer advice on developing a campaign for your local area.
• Lower-cost goods and supplies will be available because of the superior purchasing power of your franchiser.

Disadvantages

• The first and possibly biggest disadvantage is the initial outlay, which can range from a few thousand pounds for a franchise based at home, to several hundred thousand pounds for a franchise with its own premises.
• Not only will you have to make a bulk payment, but you will also be required to pay your franchiser a small percentage (usually under ten per cent) of your franchise’s gross income, whether you feel you are getting value for money or not.
• Your figures will be regularly scrutinised by your franchiser, which will also check that you are not under-declaring your income and that you are meeting operating standards.
• You will probably be expected to contribute another small percentage of your gross income to a fund to pay for national and regional marketing, whether you need it or not.
• While conformity to operational standards may guarantee quality, it can also seem restrictive and become frustrating – especially if you have a better idea for doing something.
• You may also be prohibited from selling goods or services not approved by the franchiser – even if you believe there is a strong customer demand for a new or different product.
• There is always the danger that your franchiser is weak, inexperienced or under-financed. You may have more to offer the company than it has to offer you. It is not unknown for franchisers to fail.
• Finally, you will be under contract to run your business for a specified number of years, so you won’t be able to quit without a penalty and you would lose the money you paid up front.