Franchising Pros and Cons

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Starting a business can be an exciting opportunity for an entrepreneur. It can also be a very costly one. Franchising offers a way for a new business to gain instant brand recognition and exposure without having to build it up on their own. Is it the right thing to do for your next opportunity? A look at the pros and cons may help to shed some light on the subject.

What Are the Pros of Franchising?

1. You get instant recognition in your community.
Many franchises have a strong level of brand saturation within the mass market. This gives a local business instant credibility when opening their doors for the first time because the brand saturation and reputation instantly associates itself with the new business.

2. There is more help during the initial setup phase.
Starting a business means more than just coming up with a good idea and then opening the doors to customers. Everything from the location of the business to the interior flow of customers must be evaluated. Franchises have already done this work for a business and help to scout the best locations.

3. It provides immediate access to beneficial relationships.
Franchises often have relationships with distributors and vendors that carry over to the franchisee. This gives a new business owner the chance to become immediately competitive.

What Are the Cons of Franchising?

1. There are always fees.
To become a franchise, a business owner must pay a fee. There is also an ongoing royalty that must be paid on all purchases. Advertising and marketing royalties are also common. These all come out of the revenues instead of the profits in most cases.

2. You can’t always choose your equipment.
Some franchises require specific equipment to be installed, such as a proprietary POS. This tracks the sales for the week or month and lets the franchise know how much they are owed.

3. It may not always be profitable.
Some franchise agreements require a flat royalty fee to be paid every month no matter how much money has been made. If there is a slow month, then a business owner could lose cash because the royalty is a mandatory expense that must be paid to stay out of litigation.

Franchising can have some tremendous advantages, but it may not be right for everyone. Think about what your community needs, look at the available franchises in your industry, and then see if the pros and cons add up to the potential for profit.