Advantages and Disadvantages of Starting a Franchise
Starting a franchise is a sure fire way into self employment without all the usual hassles of creating the business plan and venturing into un chartered waters with a new start-up business. The advantages over a stand alone business are evident and we have made a list to discuss the merits of starting a franchise as opposed to setting up as an independent.
Advantages of starting a franchise
1. Tried and tested business model – When you are starting a franchise you are following a system set up by the franchisor and tried and tested in multiple locations up and down the country. Many young businesses are testing new markets and can often fail due to the lack of proper research or bad implementation of the business model however when starting a franchise you will be following the tried and tested methods of the franchisor and the current franchisee base, taking away the element of risk involved with all business start ups.
2. Head Office Support – When starting an independent business you have to rely on yourself and possibly your partner for advice and support. This is a heavy burden and makes the viability of the business 100% your responsibility. All problems must be solved by you and your team alone and in many cases these might be fresh problems that you have no experience of dealing with. when starting a franchise you will have a constant line of support open for advice and problem solving and this advice comes free, giving you all the help needed to overcome any obstacles and ensure you make a success of your newly bought franchise business.
3. Local and national marketing – Marketing is not cheap, especially national marketing. In most cases a franchisor will be taking a small % of profits from all it’s franchisees and putting this towards national marketing campaigns. With this pool of money they can easily afford television campaigns and national media publications in the magazines and newspapers, giving your and your business a huge boost in brand awareness that you would otherwise not be able to afford with your own independent start up.
Disadvantages of starting a franchise
1. Lack of control – Starting a franchise, although similar to owning your own business, is not quite the same. You are under strict instructions from the franchisor on how to operate your business and options for expansion of the business model can in most cases by limited. You are bound by the agreements and operations manual and in most cases it is a very good idea to stick to the rules and instructions set down there. You are starting a franchise because you want to buy into the successful business model so why change it? However, there are sometimes occasions where a business model may not be working due to either your market area of economic climate, or you may see new opportunities which may be profitable to change the franchise system to your advantage and this may well not be allowed if you franchisor does not allow you too.
2. Monthly licence fees – Many franchisors, if not most franchisors, take either a set monthly fee from you or a % of profits. This is often split up into several areas. 1. Monthly licence fee. 2 Contribution towards national marketing. 3. Rental of equipment or premises. Often these are not static numbers but a % of turnover so you may find that where 1 franchisee is paying £100 per month for their marketing contribution, your 5% of profits is £300 per month. It is all dependent of what is laid down in the franchise agreement and you need to be aware of this.
3. Buying and renting of equipment and stock – You may think you can cut costs by finding cheaper suppliers but a lot of franchisors will only allow you to purchase and rent stock and equipment direct from their named suppliers. Often the franchisor makes a little money on this and it may seem unfair that you cannot utalise your skills in locating your own products cheaper elsehwere. However do remember that they will have strict quality controls in place to ensure that not only is the equipment and stock of good quality but that they are consistent across all franchisee’s, ensuring brand continuity.
There are of course many other advantages and disadvantages over buying a franchise and you have to take everything into consideration before going ahead with your purchase. ensuring that you have weighed up everything that starting a franchise offers over starting your own independent business. ensuring that you have all bases covered you should be able to make your decisions with confidence and the outcome is the right decision for you.
About the Author
Matthew Anderson is a franchise consultant and founder of The Franchise Shop, a UK business franchise directory featuring starting a franchise