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Launching a business entails more than just securing your capital investment. There are many things to consider. The primary step is to decide whether to start your original business idea or venture into a franchise business. If you’re on the fence between these two business models, continue reading this article, as it’s intended to help you understand more about franchising.
There’s more than meets the eye when getting involved in a franchise. Therefore, it’s paramount that you give it a thorough assessment, especially in weighing the pros and cons. You’ll be working alongside a franchisor, and you’ll be in the franchisee’s role, so get to know more about whether this role is right for you.
Maybe you have wondered, “How much do franchise owners make?” But before you make a decision, it’s imperative that you know the good and bad points of franchising.
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The Pros of Franchising
1. Franchising Offers Lower Business Risks
A franchise is a safer investment than a new business. This is because of the backing and support of a larger corporation.
Initially, you won’t have to feel anxious about shelling out large amounts of money, not knowing whether it’s going to burn or earn your money back. There are forecasts, studies, and data that support how your investment will be earned back in time with a franchise business. This means a lower business risk on your end.
Franchises have proven themselves effective in different markets across the country. Their business models have already been tested through many years of their operations. Thus it also follows that a franchise business loan is more accessible to obtain due to its history of proven success.
Many financial institutions will easily trust to lend you money when they know the brand that you’re franchising. So consider franchising when your fear of risk stops you from starting a business.
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2. Franchising Gives Established Brand Recognition
A franchisee’s brand recognition is one of the most significant benefits of opening a franchise. As you may know, establishing a brand from scratch takes a lot of hard work. It also requires a hefty amount of money along with outstanding efforts from you and your entire marketing team.
But when brand recognition is already stabilized, you can forego this excruciating process. You expedite your business operations and jump right into selling and making money.
Upon opening a franchise with such a name and branding, people instantly know who you are, what you do, and how they can expect to interact with you. To grow your brand recognition, you won’t need to partake in trial-and-error strategies for marketing and promotions.
3. You Get Steady Support and a Given System
One of the advantages of franchising that many business owners love is the given system and support. All the procedures, systems, and whereabouts are structured, uniform, standardized, and listed down. As a new franchise owner, you simply need to go over the manual and follow through with your operations. The franchisor will take care of everything for you. This includes your site inspection, product supplies, employee training, and R&D for new products.
Specifically designed business blueprints are provided to franchisees. Your business operations become smoother, more organized, and error-free through this. The franchisor would see that your business decisions are all at par with their company’s outlook to ensure business success.
4. You Can Count on Forecasted Profits with Franchising
The profits of franchises are generally higher than those of independent businesses, especially in the initial stages. Creating your own business will require you to spend money initially, and there could be possibilities of being in the red after some time.
With a franchise, however, you can avoid this. Instead, there are solid strategies to ensure that you will reach forecasted profits. Also, customers flock to franchises because they recognize their brands. Hence, profits and revenues will start coming in eventually.
5. You’ll Have a Solid Customer Base
Any new business faces the challenge of identifying ideal customers and discovering whom to target. This could be a make-or-break situation for your business.
Thankfully, franchises have established a customer base because of their solid brand recognition. The brand already comes with repeat and loyal customers, so your franchise business can serve the same target audience and get their loyalty and approval as well. Due to the franchisor’s many marketing collaterals and efforts, your business can take advantage of their positive outcomes.
Moreover, franchise ownership gives you access to a potential employee pool. And depending on your location, there will be existing customers around the business area waiting for your franchise to start operating.
The Cons of Franchising
1. Franchising Requires Higher Investment
It might be more expensive to start a franchise than to start a small business independently. A franchise isn’t the best option if you can’t afford the franchise fee and all the costs that come with it. If you can’t afford to take a loan, it’s best not to get involved in a franchise. Assess your financial standing and capacity before you choose to go for a franchise business.
Big and established franchising companies may require hefty start-up investments, so check with them beforehand. However, depending on your budget, you might find a different company with which you can afford to franchise. However, be sure to compute all the fees and costs included as you consider royalty fees and operating costs.
2. There Could Be Possibilities of Conflict
The network of support you receive when you own a franchise is one of the advantages for sure. However, this comes with a downside, too.
There could be possibilities of conflict with the way they provide support. If the parties have an imbalance of power in their business relationship, they are at risk of not getting along. Arguments and misunderstandings may occur, especially if there is a lack of clear communication with both parties.
Despite the fact that a franchise agreement lays out both the franchisor’s and franchisee’s expectations, the franchisee has limited powers to enforce its terms without a costly legal battle. There could be many variables for conflicts that may range from different perspectives and business outlooks or lack of support.
In the end, the franchise agreement is always pro-franchisor. Therefore, before agreeing to a franchise agreement, it’s best to thoroughly research the company’s mission, vision, operations, and other details. This can give you an idea of whether it’s something that you can work with for a long time.
3. You’ll Have Less Control
While franchisees benefit from the brand recognition of their franchisor, this would also affect them when there are scandals and bad publicity for the brand. This has happened to some franchise companies that dealt with corporate scandals, customer terrible reviews, and health issues. As a franchisee, you must understand that these possibilities can generally jeopardize your business.
4. You Will Have a Legally Binding Agreement
As a franchisee, you’ll be required to sign a franchise disclosure agreement, which lays out everything you can and cannot do. This contract is legally binding, so you will have to walk on eggshells constantly.
Be mindful of all the terms and conditions included in a contract and review them again with your lawyer. If, in any case, you want to discontinue a franchise, but your decision doesn’t go according to the legal agreement, this could cost you a fortune. So review all the details before committing to it.
5. Franchising Requires Continuous Royalty Payments from You
Finally, you need to pay royalty payments according to the agreed percentage of your monthly sales. While some franchise companies don’t necessarily have this, most businesses expect these fees. Consult about this carefully before agreeing to a franchise agreement.
For some people, becoming a franchisee is a good move. For others, it’s not.
What’s important is to research everything about franchising beforehand. As suggested above, you can weigh the pros and cons to determine whether franchising is a suitable choice.
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