While the franchising business model is quite attractive, it isn’t everyone’s cup of tea, so to speak.
Like every other sector out there, there are certain pros and cons to being part of the franchise space.
If you are planning to venture into it, you must weigh the pros and cons before signing on the dotted line. You need to keep in mind that your investment goes into someone else’s ideas and system, which can have its upsides and downsides. Let’s look at what these are.
The Advantages
There are well-set business processes that you can use such as marketing systems, computer systems, marketing systems, operating systems etc. These are central to the franchise business’ workings and you need to respect them and use them because that’s what you are investing in.
When you become a franchisee, training is included in the contract. The franchisor will provide you with a formal training program once you have signed the agreement. Online modules and extranet systems might be used to provide new entrants into the network with all the information they need to hit the ground running. This is much like pre-training and is a crucial aspect of finding your footing in this space.
Most well established franchise brands have elaborate technology in place that you can benefit from. You can use some of these systems to manage your customers, while others can help with payroll and accounting.
Franchisors also have ready-to-use, advertising templates and marketing plans. Having these at your disposal helps you create a better place in the market for yourself quickly. When it comes to advertising, there is always power in numbers as they can secure cheaper rates and as an individual franchisee, you benefit from this.
Many franchisors spend effort, time and money for official grand openings for new franchisees in their networks. That is a great way to make your presence felt in the local market.
Franchisors have excellent support systems in place, ranging from central computer systems, field reps to in-house personnel to man the phones. This can be a big benefit when it comes to your business’ day-to-day operations.
Franchisors also have the resources required to help you secure an ideal location for your business.
The Cons
Although there are several evident benefits to owning a franchise, there are some disadvantages too, such as:
You would have to pay an up-front, one-time, franchise fee, which is the cost of entry. This licensing fee permits you to utilise all of their proprietary information-legally.
Franchisees have to pay the franchisor a percentage of their gross sales every month as royalty until they are with the network. The percentage varies from one company to the next, but it’s something you have to factor into your accounts.
You are required to follow the rules laid down by the franchisors and there isn’t any wiggle room in this aspect. Rules help maintain uniformity and are a place to trouble you.
Most franchisors require that their franchisees purchase the required supplies and products from them even if you get cheaper rates with other supplies and vendors.
You would have to pay a certain percentage of your overall sales to the franchisor, towards the marketing fund. So check whether they have a solid marketing strategy in place and ask them whether they are getting a good ROI on their investment in marketing.
If you decide to sell your franchise at some point, you don’t have the freedom to sell it to just anyone. The buyer would have to be someone that the franchisor approves as this matters to them far more than it matters to you.
Make a Well-Informed Decision
As you can see, there are various pros and cons to the entering the franchising space. But for the most part, if you become part of a solid, well established brand, you won’t have to start from the ground up. You can use the support and existing system to create a successful business.
For more information, feel free to call the experts at The Franchise Institute. You can call us on 1300 855 435 or fill-in this contact us form, and one of our experts will contact you as soon as we can.
Thanks for reading, The Franchise Institute Team 1300 855 435
