What Are the Advantages and Disadvantages of Franchising?

In today’s economy, many people are looking for new options for making money.  It might be because they’ve lost their current job, or would like to find a more stable industry.  One option you have is buying a franchise.

A franchise is a business relationship where a company, generally with an established name and a good customer base, sells the rights to operate a business under their name.  The franchisee pays fees and operates the business. There are available franchises in everything from fast food chains to travelling science teachers.



Name recognition – When you open a new business, getting people to start buying from you is often the hardest part.  People often go to the same place for specific products and are unlikely to try something new unless they have a problem with where they currently go.  With a franchise, people already know and like your product, and this saves you time and money on marketing your new business. This alone can often make up for the difference in initial start-up costs.

Mentoring – By working with a franchise, you get the benefit of having people around you who know what they’re doing and generally want you to succeed.  This means they’re willing to help you establish your business, give you advice, and even help you out with business-related problems.

Reduced Costs – Suppliers always charge less the larger the amount of product you buy, which can be a severe hit for a small business owner.  Because franchise companies buy products in huge bulk, this generally reduces your costs. Sure, you can’t shop around because you are required to use a certain product, but you’re still probably getting a better price.  



Cost – The initial cost for setting up a franchise is extensive.  Not only are there franchising fees, but you also have to pay for the other things involved in opening a business, like the location, construction, and supplies.  Also, some franchises require you to pay certain costs out of your own pocket, separate from any money you are loaned.

While it may be more expensive than starting your own small business, you’re also much more likely to get a loan.  Small businesses are a risky venture for a bank, but if you are buying an established franchise, you’re a much more stable investment to a financial institution.

Lack of freedom – While it’s often great to have established business practices and products already in place, this can also be a problem for owners with new ideas on how to fix and change things.  Franchises work because everywhere you go, the franchise is the same. This takes away a lot of your flexibility when it comes to your business.

Franchises are obviously not for everyone.  It is important to look at your own personality and preferences before becoming a franchisee.  It’s also important to choose the right franchisor for your unique preferences and needs.


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