There are many ways to start a business these days, be it running an online business, start-ups, food trucks, or even buying a franchise. If you are interested in starting a franchise business, then you must consider the advantages & disadvantages of operating a franchise.
This guide contains all the key factors you need to consider before you decide if operating a franchise is the right decision for you or not. So, let us begin!
Advantages & Disadvantages Of Operating A Franchise
Operating a franchise, just like any other business, has its own set of advantages and disadvantages. Let us look at them closely so that you can understand whether running a franchise is right for you or not.
Advantages of Operating A Franchise
1. Ready-made business plan
Starting a business from scratch means coming up with a business plan, forming a legal entity, registering a brand name, working on the layout and design of the store, etc.
When you buy a franchise, you do not have to deal with the initial headache of starting a business. All you need is the needed capital and willingness to operate a franchise business.
2. Lack of experience might not be a problem
While business acumen is preferred, a lot of franchisors do not necessarily ask for industry experience. Franchisors give the needed training and support to interested candidates, and for most franchises, that is just enough.
So, if you do not have business experience, even then, you can open a franchise and try your hand at running a business.
3. Brand recognition
Building a brand from scratch takes time, money, and patience. But when you buy a franchise, you get the benefit of existing brand recognition and a solid customer base.
People already know what to expect from you, so you do not have to struggle with brand building, which is one of the most challenging aspects of starting a business.
4. Low failure rate
As compared to individual businesses, franchises have a low failure rate. When you buy a franchise, you already know how popular the brand is and what you are getting yourself into.
As such, the risk associated with buying a franchise is much less. And you are already well aware of the success of the franchise brand.
5. Support from franchisor
Starting a business on your own can be daunting. But when you buy a franchise, you get ample training and ongoing support from the franchisor.
For someone who has never run a business, this could be quite helpful. In addition, you also benefit from their years of experience and from the new strategies they come up with to attract more customers.
6. Expansion opportunities
Another advantage of operating a franchise is that you get ample opportunities to expand your business by opening multiple outlets of the same franchise both nationally and internationally.
This could be great, especially if you have found a successful franchise. You can open a new location easily with the franchisor’s support and make more money.
Disadvantages of Operating A Franchise
No business opportunity comes without flaws, and in spite of the many advantages of operating a franchise, there are certain disadvantages that you must account for.
7. Lack of control
Operating a franchise means having limited control over the daily operations of your business. In this type of business model, you are supposed to follow the recipes, guidelines, training standards, procedures, hours of operation, etc. as set by the franchisor.
In addition to this, you are also limited to selling only the approved products and services by the franchisor.
For this, you will be required to rely on and communicate only with the franchisor’s vendors and suppliers. So there is an extreme lack of control when it comes to operating a franchise.
8. High initial cost
In order to purchase a franchise, you need to put in the initial investment amount, along with the initial franchise fees that are needed to cover the cost of training, licensing, etc.
And you must also note that, ideally, the cost to open a franchise is much more than starting a business from scratch.
9. Potential for legal disputes
Whenever you enter into a legal agreement with another business, you make yourself open to the risk of legal disputes.
Although a well-crafted franchise agreement should protect you against a lot of trouble, there is still a possibility of legal disputes. And since legal disputes are solved through the mediation of court, this could cost you time and money.
10. Plenty of franchise fees
Franchisors do not give you their brand logo and recognition for free. For running a franchise business, you are supposed to pay a fixed percentage of royalty fees and advertising fees each month.
These costs take up a good part of your profit. So, the benefits you enjoy from an existing brand name and customer base come at a price.
11. Limited opportunity for creativity
As a business owner, you might have a dream of opening an outlet that looks a certain way; you might also want to add or remove items from the menu and whatnot.
But when you operate a franchise, you cannot decide what goes on the menu or even in the recipe, nor do you have any control over the interiors of the store. You might only be allowed to come up with a marketing plan or advertising, and that too only in some cases.
12. Cost of supply chain
In a franchise business, franchisees are expected to work with the supply chain of the franchisor. In some cases, the franchisor might have a high-quality standard, which could result in high supply chain costs.
Although this might not be a major disadvantage, it could deter a person from investing in a franchise, depending on their budget.
13. Zero control over the menu
When you buy a franchise business, you are supposed to strictly follow the recipes set by the franchisor and are not allowed to make changes in the menu items or their price. This might not be the best thing for someone who loves cooking and wants to have a menu created by them.
14. Lack of financial privacy
When you sign a franchise agreement, you give the franchisor the right to access and oversee your entire financial system. This leaves you with zero financial privacy.
Is Operating a Franchise Worth It?
There are both advantages and disadvantages to operating a franchise, and we have listed them all in the section above. Whether operating a franchise business is worth it or not depends on your preferences.
If you want an already-established business model and customer base, then you will have to bear the initial investment cost and another on-going cost.
But if you do not mind building a brand from scratch and want the independence in running a business without any third-party interference, then starting your own business might be better for you.
Wrap Up
In this guide, we discussed the advantages & disadvantages of operating a franchise so that you can decide which road you should take. We hope this article was useful to you.
FAQs
Is owning a franchise similar to owning a business?
The main difference between owning a franchise and owning an independent business is the level of control and associated costs.
Do the franchise owner own the property?
The franchisor owns the patents, intellectual property, and trademarks of the business or brand being franchised, and the franchisee only buys the right to operate a location of the franchisor.
Can a franchisor fire a franchisee?
Franchisors reserve the contractual right to terminate their franchisees “for cause.” In this, the franchisor can fire a franchisee based upon a default under the franchise agreement. And the most common reason for the same includes failure to pay royalties.