Your main consideration before buying any particular franchise is whether it will work as a business for you and provide you with the sort of living you require. Assuming that you have found such a franchise, there are advantages and disadvantages of which you should be aware.
THE PLUSES
1. It is your own business.
2. If the business format has been well worked out and tested in the pilot operation, many of the problems experienced in setting up a business can be side-stepped. This reduces your risk.
3. You receive on-going advice and support. This can be particularly important for someone who has had little business experience.
4. You hope you are buying a product with a recognized brand name. To create a brand image all by yourself can involve considerable resources. But in the case of a franchise, the franchisor should carry on promoting it, using the management service fee (or royalties) or possibly an advertising levy which all the franchisees will pay. So the brand name of your business will be getting bigger selling push than could be achieved by each franchisee’s individual contribution.
5. In the case of many franchises, you need no knowledge of the industry before you start your business. The training given by the franchisor should be sufficient to overcome any ignorance.
6. Franchisors, because of size, have greater negotiating power with suppliers than you do your own, although not all of them pass this benefit on to the franchisees.
THE MINUSES
1. While it is your own business, you are expected to act in the best interests of other franchisees and the franchisor. You could find this irritating and restrictive.
2. As well as the initial fee, part of your profits will have to go each year in a payment to the franchisor. You might find this galling.
3. Often the continuing fee to the franchisor is based on your sales rather than profits. This could lead to problems if you are struggling to make profits, perhaps because the costs are too high. This will not be reflected in the level of the fee
4. The franchisor has the right to demand that you send in sales statistics and other documents promptly, plus the right to come to your business premises and inspect your records. Again this might strike you as a loss of independence.
5. You have to adhere to the methods laid down in the franchisor’s operating manual. This could be restrictive and allow little room for you to exercise you own initiative and enterprise.
6. You may have to purchase all your stocks from the franchisor. This allows little room for you to seek competitive alternatives. Again, you could find this stifling, if you want to run your own business.
7. Should the franchisor, despite all your preliminary research and investigations, fail to maintain the brand name by promotion or fail to meet commitments about training and the search for better produces, frankly there is little you can do about it. If this is all buttoned down in the contract, however, you may be able to get somewhere.
8. If you want to sell the franchise before the end of your contract, the franchisor has to agree.
9. The franchise runs for a certain number of years. Normally, if your performance is satisfactory, you will be able to renew for another period; but you may have to commit to spending more money on refurbishment and more modern equipment. What happens about further renewals is not always clear. You should assess the return on the money you invest over the first period of the franchise only. If, for some reason, you are not able to renew, you may have little to sell, because you cannot sell the name or the goodwill.
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