Some of the largest companies in the world are actually franchises. Many major industries are dominated by franchises. Everything from cleaning services, and fast food restaurants to vending machine companies and consulting services. And they are all looking to add you to their always growing list of franchise owners. Before you join that group of people though you had better be aware of the problems you might end up facing.
The number one item on our list is that some people are too independent to be able to own a franchise. If you like having creative control over your business then a franchise is probably not right for you. The reason being is that the parent company is going to be telling you exactly what you can and cannot do with your store location. Imagine if you owned a sandwich shop but you aren’t allowed to design the sandwiches. The franchisor will always tell you what sandwiches to sell and exactly how to make them. Are you really prepared to handle all that?
The second obstacle for you can be the length of the contract they want you to sign. Some franchises only ask for a five year term that can then be renewed but larger franchises often ask for ten to twenty years. Do you really know what you want to be doing in twenty years time? If you do sign such a contract and then later want to opt out they will impose some pretty hefty fees for doing so. Make sure you look into the fine print for this part of the contract. They will probably allow you to sell your store but if you do they will likely want to approve the new owner and possibly charge them a franchise fee as well.
The third part to consider is the fact that some franchises have developed the bad habit of placing stores to close together. This causes a cannibalization effect. Whereas the new store will cannibalize the sales of the existing store. This of course can lead to tensions between the two store owners and between the store owners and the parent company.
Your fourth obstacle potentially comes from the support the franchise company will provide to you. Many franchises once they have received their franchise fees like to forget you even exist. The support their corporate office gives you can often be nonexistent. Unless of course for some reason they fail to receive their royalties for the month. Then you will probably hear from them.
Now od course this leads us into the most important part of owning a franchise, the royalties. Yes most franchises charge some form of monthly royalty. Either in the form of a set monthly fee or possibly a yearly fee. Often though they charge a percentage of your businesses profits for each month. This form means that as your business grows so to will your fees. Unless of course you never make a profit. But if this isthe case then you quickly find yourself out of business. Considering how much you probably spent to get your store up and running this can often be a real thorn in your side.
So if you are considering buying a franchise please be aware of the potential pitfalls. Just like most things some companies are good and some are bad. It’s up to you to make the decision of which is which. Or maybe you’ll find that buying a franchise is just not right for you after all. But you’ll never know until you look.