Advantages / Disadvantages of Owning a Franchise

Yes, one must know that there are many clear advantages and a few disadvantages to owning a franchise. On the plus side we find many advantages that are basically conveyed to us for joining the system. At the very beginning, a candidate has the opportunity to validate a franchise system by reviewing the Franchise Disclosure Document (FDD) and talking with management about the franchise goals and objectives to include short and long term strategies, financial condition, growth history and a number of other data points. The candidate is also extended permission to "validate" the franchise concept with other owners of that particular brand. The existing owners become a most valued resource for the candidate as he/she does due diligence.

Once a franchise candidate becomes a franchisee, all kinds of resources are now readily available to the new owner. The formulas for successful operation neatly unfold in the operations manual so the new owner does not have to decide what to do or how to do it. All of the marketing materials, web site, artwork, documents, training modules, preferred vendors, customized software, equipment, build out support and new products or services come with being the new franchisee. In a recent study, 75% of franchisees polled said knowing what they now know, they would make the same decision again to be a franchisee. With all of the support and encouragement surrounding the new franchisee it is easier to win and we know that people invest in franchises because most franchises do win. 

A new franchisee recognizes that it could take many years to create what is shared with him once he becomes a franchisee. Traditional business owners need to spend years developing their businesses into a machine that can keep pace with a powerful franchise. When ACE Hardware arrives in town, what happens to the mom and pop down the street? A franchise brand carries a big stick and is very competitive. Paying royalty and an ad fee to the franchisor helps build the powerfulness of brand in many ways. The franchisor knows what works and will share it with every franchisee to support their individual success.

One may ask at this point, what are the disadvantages? To be blunt there are a few reasons why people will avoid franchise opportunities. Some don’t like paying royalties and ad fees, some don’t like to follow guidelines and need latitude to change what they want when the thought hits them and some don’t want to commit to the franchise license agreement of ten or more years (although they can sell at any time in most cases). Generally speaking, some people are much higher risk takers and want to take on the market alone. However, we all know that less than 20% of new independent start ups actually survive. In comparison, it is interesting to know that over 90% of franchises survive due to the fact that the franchisee is working with a proven system that someone else spent years perfecting with lots of help. There is much more to this divide of traditional vs. franchise business ownership and it is wise to consult a professional if contemplating moving forward in either direction.

Third in a series of 8 posts by Al McCooey, President of Summit Franchises and a franchise consultant who helps clients identify excellent fitting franchises that they will enjoy operating and have the opportunity to be highly successful at. Learn more about Al and franchising at Next week: Why should I invest in a franchise?

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