What are the advantages and disavantages opening your own business instead of a buying a franchise?
July 8, 2010 · 1
Graduate Assistant says:
Advantages of Buying A Franchise
1) Lower Failure Rate – When you purchase a franchise, you are buying an established concept that has been successful. Statistics show that franchisees stand a much superior chance of success than people who begin independent businesses; independent businesses stand a 70 to 80 percent chance of NOT surviving the first few critical years while franchisees have an 80 percent chance of surviving (Michael M. Coltman, Franchising in Canada: Pros and Cons, Self-Coursel Press).
2) Help with Begin Up and Beyond – You get a lot of help starting your business and running it afterwards. Many franchises are, in fact, turnkey operations. When you purchase a franchise, you get all the equipment, supplies and instruction or training needed to begin the business. In many cases, you also get ongoing training, and help with management and marketing. Your franchise will reap the benefit of the parent company’s national marketing campagns, for instance.
3) Buying Power – Your franchise will benefit from the collective buying power of the parent company as the franchisor can afford to purchase in bulk and pass the savings along to franchisees. Inventory and supplies will cost less than if you were running an independent company.
4) Star Power – Many well-known franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers.
5) Profits – A franchise business can be immensely profitable. (Think of Macdonalds and Tim Hortons, for instance.)
Disadvantages of Buying a Franchise
1) Their Way or The Highway – The main disadvantage of buying a franchise is that you have to do it their way – sometimes right down to the way the napery holders are filled. As a franchisee, you are not the one actually running the show, and some franchisors exert a degee of control that you might find excruciating.
2) Ongoing Costs – Besides the original franchise fee, royalties, a percentage of your franchise’s business revenue, will need to be paid to the franchisor apiece month. The franchisor might also charge additional fees for services provided, such as the cost of advertising.
3) Ongoing Support? Not all franchisors offer the same degree of assistance in starting a business and operating it successfully. Some are just start operations – and everything after start is up to you. Others make promises of ongoing training and support that they don’t follow up on.
4) Cost – Buying into well-known franchises is very expensive. If this is your choice, you will have to have extremely deep pockets or the capability to hold the necessary financing.
5) Shark-Infested Waters – Buying a little-known, perhaps affordable franchise can be a real gamble. Just because a business is offering franchises is no guarantee that the franchise you purchase will be successful. In some cases, franchising is the business; all the franchisor is interested in is selling more franchises. Whether or not the individual franchises are successful is irrelevant to them. This is not to state that no tiny known, affordable franchises are worthwhile, but just a reminder that any franchise you’re thinking of buying needs to be investigated carefully.
I hope this helps!
With a franchise, yes its true you might outlay more cash up front and be forced to run by someone elses rules which might seem like more of a job than a business at times. Even though you will get all the benefits of running your own business, it will be FAR cheaper to operate someone elses franchise than to start your own in the long run considering all the mistakes and costly errors one would make.
A franchise is a system that you are buying, not the business. A system if used properly and successful, is really designed to run by itself while it shovels money into your bank account while you sit on a beach somewhere and sip on MiTies.