Starting a franchise business can be a great way to become a business owner with a proven business model, established brand, and support from the franchisor. However, there are also potential drawbacks to consider.
While franchises offer lower startup costs than starting your own independent business, they also limit your ability to innovate and control your products or services. The franchisor will have strict requirements for how things are done at their locations and will likely require you to buy all supplies through them—which could end up costing you more money than it would if you were doing it yourself. Here are some more pros and cons of starting a franchise business:
Pros:
Proven business model
Franchises have a proven business model that has been successful in other locations. This reduces the risk of failure compared to starting a new business from zero. Franchises have been around for years and offer a lot of advantages. Many businesses fail within their first year, but franchises have a proven business model that has been successful in other locations. This reduces the risk of failure compared to starting a new business from scratch.
We do not believe that starting a franchise is just for people who don’t have the skills or experience to start a new business from scratch. Many people choose to open their own franchise because they want to take advantage of the proven success of an existing business model, rather than having to create one from scratch.
Established brand
The pros of starting a franchise business include an established brand, which can be beneficial when it comes to marketing and attracting customers. Customers are often more willing to try a business they recognize. A franchise can also help with the planning process, so you don’t have to figure out everything from zero. You’ll have access to the company’s expertise and knowledge about the industry. Finally, it can be helpful for your business if you’re looking for funding or capital because investors may be more likely to invest in a franchise than in an independent business.
National advertising
National advertising is a great way to bring awareness to your brand, but it’s also an opportunity to drive customers to individual locations. When your ads are on national television, they’re likely to catch the attention of people who are far away from your physical locations; these people may be more inclined to seek out your services if they know what they’re missing.
When you advertise on national television, you can reach millions of people who aren’t necessarily in close proximity to your business. As a result, this type of advertising has the potential to attract new customers who may not have been aware of your brand before seeing it on television. National advertising can also serve as a reminder for customers who live nearby that your business exists and can be accessed easily when desired.
Access to a network
When you become a franchisee, you become part of a network of other franchisees and the franchisor. This can provide opportunities for networking, sharing ideas and best practices, and even finding new business opportunities.
You will also be invited to attend regional events hosted by the franchisor or other franchisees. These can help you get to know your fellow franchisees, who may be able to refer customers to your business or offer advice on how to work with them. You may also find that you have similar goals or needs that could be addressed by working together. It is important to remember that it is important for your success as a franchisee that you remain true to yourself and your business model while also taking advantage of the resources provided by the franchisor and other franchisees in the network.
Cons:
Initial investment
Starting a franchise business can require a significant initial investment, which may be out of reach for some prospective franchisees. There are several options for financing your initial investment but we have listed two:
1. Franchisor financing is often available from the franchisor or another third-party lender. The franchisor may require proof of financial capability before providing financing, so you’ll need to submit audited financials and other information to them. This is common practice among franchisors, especially in cases where they’re offering a loan that might otherwise be hard to secure through traditional banking institutions because of your lack of experience or credit history.
2. If you have savings or other funds available, you can use those as collateral to secure an unsecured personal loan or line of credit at a bank or credit union. You’ll need to show that you have at least two years of stable employment and no recent bankruptcies (if applicable). These types of loans tend to have low interest rates but higher fees than secured loans from banks like mortgages do; this means that they might not be as attractive if there’s another way for you get started with less upfront cost than this option would entail.
Lack of control
The most important thing to know about franchising is that franchisees have less control over the business than if they were to start a business from scratch. Franchisors typically have strict rules and guidelines that franchisees must follow. This lack of control can be both good and bad. On the one hand, it can give you peace of mind in knowing that you’re protected by someone else’s brand and reputation. On the other hand, it can feel like you don’t have enough say in how your business operates.
Limited creativity
Being a franchisee can sometimes feel like you’re stuck in a rut. You have to stick to the business model that the franchisor has established, and it may feel like you don’t have much leeway with your products or services. You’re also part of a larger brand. Your brand is the whole package: its name, its logo, its mission statement, and all of the products and services it offers. If a potential customer walks into one of your locations and sees something that doesn’t fit with what they’ve come to expect from [franchise name], they might decide that they don’t want to do business with you at all.
This is why it’s so important for franchisees not only to adhere to the franchisor’s business model but also to take advantage of any opportunities they have to contribute their own ideas and creativity.
Shared profits
Sharing profits with the franchisor is a common requirement of franchising. This practice can help to ensure that the business remains profitable, as well as provide funds for future growth and expansion. It’s important to note that not all franchises will require you to share your profits with the franchisor. Some franchises are more lenient with their policies and may only require you to pay an initial fee upon signing up, then not take any additional money unless something goes wrong.
So, what does all this mean for you?
If you’re thinking about starting a franchise business, it’s important to know that it can be a good option for those who want to become business owners without starting from scratch. But it’s not without its challenges: there are pros and cons of running a franchise business that you should consider carefully before making your decision.
RUCHI RATHOR Founder & CEO
Payomatix Technologies Pvt. Ltd.
FOUNDER AND INVESTOR | PAYMENTS PROCESSING EXPERT | MERCHANT ACCOUNT SOLUTIONS | WHITE LABELLED PAYMENT GATEWAY | Dreamer, Creator, Achiever, Constantly Evolving
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