Whether to own or not to own a franchise may not be as serious a question as what William Shakespeare’s in his most famous words on life and death said: To be or not to be.
Nevertheless, starting a new business venture calls for a lot of deliberations, weighing the pros and cons, clear planning, and a long-term vision.
You are eager to break free from your monotonous job or start a new venture alongside your family business. You have already set your eyes on the franchise model, but unknowns may still clog your mind. Franchise offers a trodden track but thoughts of what lies ahead act as a big barrier in making the final call.
In franchising, a business owner sells its company’s rights, including model, research and development, logo and, in many cases, training and support too at certain fees and loyalty.
Procrastination could very well be the sign to ensure you do not make any poorbusiness decisions. Appeal in favour of a franchise business is strong. There are also figures to support that it is just not any fictional tale. But nothing guarantees quick profits and a strong survival.
You are bound to run the business under the rules that have already been set. So, before you take a plunge, let’s make sure how deep the river is. Here’s a quick take on why or why not own a franchise.
Why you should own a franchise ?
There could be a possibility that a brand or a product has already caught your fancy. You might also have realized the growing demand for a particular product or service in a specific segment or you just simply want to become part of an already phenomenally successful brand. Whatever the reason is to start a franchise business, certain rewards always come along:
Adopt a successful business plan: The beginning is the most important phase for any business. From a perfect blueprint, business model, product research and development to testing and dry run, everything has to go right to launch a new venture. But buying a franchisemeans adopting a system that is tried, tested and successful. You are free from the worries of ‘how, what and why’ of the business setup.
Brand recognition: The hardest part for any business is building its own identity and recognition. But when you own a franchise, the product or the service is already well recognized and you get a ready-made base of loyal customers with a registered and established trademark. You do not have to move even a finger to make it popular or to earn the trust of customers and clients. It is already a successful brand. Return oninvestment in franchises may occur faster than the start-ups.
Extensive marketing and advertising campaign: Franchisors always promote their business on a large scale and as a franchisee, you are a natural beneficiary of a big and effective campaign with a vast reach. The scale of campaigns can range from state to nationwide. In the case of multinational brands, the drive goes global through powerful mediums like television, social media, and the internet.
Training: More often than not, the success of a business also depends on how its staff perform. Most franchisees provide total human resources support, from hiring and training to setting the daily operations in place and bringing in the required technology.
Collective buying power: Franchisor’s deep-rooted relationship with suppliers comes in very handy and is quite affordable for the franchisee. It increases the collective buying power and eventually the profit margins.
Why you should not own a franchise ?
Owning a franchise is no cakewalk. It has its own upheavals and challenges. Set business models can have flaws and sometimes loyalty can hit your profit margins hard.
Besides, you get a very limited room for experiments despite it being your own business. You should be well aware of what to expect.
High franchise fees: Often the franchise fees are higher than theinvestment required for starting your own business, creating liquidity issues at the very outset. Add to that the monthly loyalty charges which could go as high as 5 to 8 percent. This can drastically reduce the profit margin. Franchisors may even sell additional franchises, sometimes in the same segment, affecting the business of both franchises.
Go by the rule: Being part of a big chain, you are not totally your own boss despite making huge investments. Of course, autonomy is there, but by and large a franchisee has to abide by the rules and regulations specified in the agreement.
Tough contractual agreements: The franchise agreement comes with an expiry date. Often, the franchisor calls the shot while renewing the terms and conditions. In some cases, it may even end in the termination of the agreement irrespective of the latest market position of the franchise. It can be difficult even in case the franchisee wishes to exit the business and may have to continue against his own will.
Reputation management: Irrespective of how well-managed and run your franchise is, it is bound to suffer losses if the overall reputation gets tarnished at any level.
The solution: To make up your mind about whether to become a franchisee or not, you must rope in an expert consultant for thorough research. A consultation can suggest the best franchise that suits your vision and scale. Expert guidance can be valuable in deciding the type of business ownership that fits you the best. It is no different than going to a driving school before you hit the road by yourself. A consultant can not only save your time and money but also offer advice on funding and insights on making the right decision, which an outsider cannot.
My name Is Dhinal Baxi and I am from Ahmedabad, Gujarat, India. I am a founder of franchise Insider . As a founder, we have served hundreds of clients. My experience from the financial sector has helped them to achieve great success in the franchise world. Franchise Insider is one of the leading franchise advisory and consulting company.