All the renowned brands you’re a fan of, are most likely doing franchisee business models. The burger you have from McDonald’s or the Coke you buy from the nearby store might not be made by the original company. They are most likely made by someone who got the license from the original company to manufacture and market their products. Yes! Even you can start a business under the name of world-renowned brands! Buying or owning a franchise has a lot of benefits, but it has some demerits as well. Let’s explore them one by one.
What is Franchise Business and How Does it Work?
Alright, so a franchise is like a special deal where a business (franchisor) lets someone else (franchisee) use their awesome brand, products, and ways of doing things. The franchisee pays a fee and ongoing royalties for this opportunity. And guess what? The coolest part is, as a franchisee, you get access to all the inside secrets of the franchisor’s successful business and a ready-made customer base. Before jumping in, the franchisor must tell the franchisee all the important stuff through the Franchise Disclosure Document. Franchising works by granting a license (franchise) to use a successful business’s brand and methods. The franchisee pays fees and gains support to operate under the established name. [1]
Advantages of Buying a Franchise
No Prior Experience is Needed to Kickstart Your Business
Purchasing a franchise opens doors to a new career in a field you find intriguing, even without prior experience. Franchisors provide extensive support and training, ensuring you understand the business model. Being part of an established brand grants you access to valuable knowledge and industry secrets accumulated over the years. Instead of learning through trial and error, you benefit from the collective experience of previous owners and leaders, increasing your chances of success. The franchise model offers a unique opportunity to dive into a new industry with a safety net of guidance, ultimately paving the way for a rewarding and prosperous venture.
Opportunity to Work Under an Already Established Brand
Franchising offers a shortcut to success by providing access to a ready-made customer base and potential employees. Forget the struggle of building a brand from scratch and attracting customers – with a franchise, you step into a business that’s already well-known and trusted. By investing in a recognized brand, you fast-track your journey to profitability as customers and potential employees flock to your established venture from day one. It’s a smart way to leverage the reputation and reach of an existing business, saving you time and effort while propelling you toward a thriving future.
Support from a Large Network of Franchisees
Franchising goes beyond just the support from the franchisor. You’ll receive valuable training, access to an operations manual, and ongoing advice. But that’s not all! You become part of a network of fellow franchisees who are there to lend a helping hand. Regular gatherings like annual conventions or meetings allow you to connect with others in the franchise family. This united front provides a wealth of shared experiences, knowledge, and camaraderie, making your franchise journey even more rewarding. Embrace the strength of a larger community, where everyone’s success fuels the success of the entire network.
Achieving the Power of Collective Buying
Joining a franchise means tapping into the franchisor’s well-established supplier relationships. As part of the franchise system, you enjoy the perks of collective buying power. This translates to cost savings on materials and supplies, thanks to the franchisor’s ability to negotiate better deals. Unlike independent business owners, you get access to goods at lower costs, thanks to the solid partnerships forged by the franchisor. It’s a win-win situation, empowering your franchise with competitive pricing and ensuring you stay ahead in the market. Benefit from the economies of scale and watch your profitability soar with the support of the franchise’s network.
Low Risk and Easy Finance
Franchises come with added security as they are backed by established corporations with proven business models. Unlike starting from scratch, franchise businesses have a track record of success in various markets. This proven performance makes it easier to obtain a franchise business loan compared to launching an independent venture. Banks and lenders prefer franchises due to their familiarity with the franchisor’s product or service. With reduced risk and simplified funding, investing in a franchise becomes a smart and reliable choice, setting you up for success with the support of a reputable brand and a stable financial footing. [2]
Disadvantages of Buying a Franchise
Limited Flexibility For The Franchisee
As a franchisee, you benefit from a proven business model, but it also means some trade-offs. You might encounter limited flexibility in shaping your business. The franchisor’s established systems and branding guidelines are the foundation of your success, but they can also curb your ability to explore unique ideas. While you gain the advantage of a recognized brand, you might find it challenging to adapt quickly to local market demands or implement innovative approaches. Balancing conformity with creativity can be a delicate dance in the franchising world, making it essential to weigh the benefits against the potential limitations.
Continuous Fees and Royalties Regardless of Profitability
When you invest in a franchise, remember that it’s not just about the initial payment. You’ll be obliged to pay ongoing fees, including royalties based on your sales. While these fees fund valuable support and services from the franchisor, they can eat into your profitability. Especially in the early stages of your business, when you’re working hard to establish yourself, these financial commitments might become a considerable factor. It’s crucial to carefully analyze the financial implications and projected growth to ensure that the franchise’s benefits outweigh the ongoing costs.
Dependence on Franchisor’s Decisions
Being part of a franchise network comes with the advantage of guidance and support from the franchisor. However, it also means that certain decisions that impact your business are beyond your control. Changes in the franchisor’s policies, product offerings, or marketing strategies can directly influence your operations and, consequently, your success. While the franchisor’s expertise can be beneficial, you might find yourself relying on their decisions, leaving you with limited autonomy in essential aspects of your business. It’s essential to consider the level of influence you’re comfortable with when choosing a franchise opportunity.
Bottom Line
This is an amazing opportunity to brand your business under world-renowned companies. With proper planning and execution, you can rip off huge benefits out of your bought franchise. I would advise you to properly maintain the guidelines of your franchisor while innovating things like proper location and targeting proper customer bases. Sometimes, the franchisor even lets localize the products to meet customer needs. [3] This is also somewhere you can show your creativity and boost your business. Hope this article showed you both sides of the coin and helped you understand the scenario better.
References
- https://www.investopedia.com/terms/f/franchise.asp
- https://franchisebusinessreview.com/post/franchise-advantages-disadvantages/
- https://terratranslations.com/2019/02/10/product-localization-lessons-from-mcdonalds/
I am a finance enthusiast who writes well-researched articles and blogs on business analysis, the financial service industry, and marketing analytics. My writings result from accurate market data and the application of my profound theoretical knowledge about business.