Top 5 Pros and Cons of starting a franchise

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Pros and Cons of starting your own franchise

I have never owned a franchise or known anyone who has, this is all very new to me. Going through the process of buying one in the last month I have learned a lot. I’d like to share what I believe are some of the top pros and cons of owning one.

Pros

1. The training 

If you have never owned a business, a franchise is a great way to start. They will teach you everything you need to know, on a basic level, about, HR, book keeping, scheduling, inventory, how to use all the systems and software, how to track costs and tons of other info. You will also have an opportunity to work hands on with the type of business you plan on opening. In other words you could essentially open a business with no prior knowledge of the business itself. Want to kill bugs? Go for it! Open a sandwich shop or liquor store? You can do that too! The sky is the limit with a franchise.

2. The Brand

Brand-Story

One of the best reasons to buy into a franchise is for the brand name. Advertising can be very costly and a small business doesn’t have much reach outside of the area it’s in. When you buy into a well known brand you are also purchasing their name. When a person comes into town looking for a place to eat or buy an item they know instantly which stores to visit, based on their name. Let the brand pay those big advertising fees and reap the benefits!

3. New, New, New

Not very good at coming up with new ideas? No problem. A franchise has an entire team of people that continually look for new ideas and test new products. Their goal is to make you money, because that’s how they make money. When you walk into PizzaHut and see that new delicious pizza, with the pepperoni twists as the crust, you can thank their R&D department. They keep things fresh and new so you can worry more about making money and less about people getting bored with the product.

4. FBC- Franchise Business Consultant

Another great pro is that you get your very own FBC. Basically this is an on hand consultant that you can contact about any questions or issues that arise. When you start your own private business you may have a hard time finding someone willing or knowledgeable enough to give you a hand.  You’re basically on your own.

5. The Money 

Opening your own business is a big risk. There are many unknowns involved, especially if it’s your first business. The plus side of a franchise is that you have a pretty good idea of how popular/busy it will be. You know your area and you know what people enjoy. With a franchise you know how the food tastes or the service your customers will receive. Your consultant can even give you a pretty good idea of the ROI (return on investment) you should expect. A good franchisor won’t allow you to open in a market they don’t think will produce. They don’t want to taint their name with closures anymore than you don’t want to fail and close.

Make it rain

As you can see there are some pretty amazing reasons to own a franchise business, but what about the downside?

Cons

1. Royalties 

I wouldn’t say this is the worst reason, but I’m sure it would top most peoples list. When you own a franchise you also have to pay anywhere from 5 to 10 % of your net sales  to the franchisor. This fee covers everything from advertising to that business consultant I just listed as a Pro. It’s a pretty good chunk of change out of your pocket every year. Definitely something to think about.

2. The Brand 

Yes, this gets listed on both. Do you have a certain brand that you can’t stand? Say, McDonalds for instance? Would you go to a McDonalds in a different town knowing that they served the same food? Probably not. You could potentially lose customers without ever serving them. One bad experience at another location could cost you money at your location down the road.

3. Lack Of Control

A franchisor will tell you what to buy, where to buy it form, what to sell, how to decorate your store, and everything in between. They will conduct audits to make sure everything is up to code and they can fine you if it isn’t. It’s still YOUR store, but they still have a lot control over how you run it. Just keep in mind, they want you to make money. If you don’t want someone telling you how to run your business this is a huge turn off. This in itself has many pros and cons depending on how you look at it.

4. Umm, How much? 

Ever wonder why your small town doesn’t have a Texas Roadhouse or Panera Bread? To open a Panera Bread, you’d need a net worth of$ 7.6 million and liquid assets totaling $3 million.  Lets also shine some light on the requirement to open several stores in a six year span. It’d be much cheaper to open your own privately owned steak joint or sandwich and soup restaurant. Not all franchises are this expensive, for instance, you could open a Jimmy Johns for $400k or a Subway for $100k. Most of them charge an upfront franchise fee, on top of the royalties. My recommendation if you want to go the franchise route, buy one that’s already up and running. Unless you’re rich of course!

5. Where’s Ma and Pa?

This kind of goes with the brand, but is worth listing separately. I personally love going to a different city and finding small privately owned restaurants to try out. They have their own special touch that makes them great (or terrible). I had the opportunity to eat the best pizza I’ve ever had, in Atlanta recently. It was from a Ma and Pa restaurant that imported everything from Italy, including the flour. You won’t get that from a franchise.

I personally opened my first business with no prior experience and with no help other than my business partners that had the same experience I did. If I had the opportunity to do it over again, I may have opted for the franchise route mainly because of the training offered and it makes for a great opportunity to get your feet wet in the world of entrepreneurship.

Whichever way you go, opening your own business is a great opportunity. There’s something to be said about working for yourself. Even if you do decide to keep a full time job there’s always that extra safety net to fall back on.

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2 thoughts on “Top 5 Pros and Cons of starting a franchise

  1. Keeping your existing job also allows you to take advantage of company resources for the benefit of your new enterprise. Obviously, you can t take office supplies or tangible goods, but you can talk with your bosses, co-workers and colleagues to get advice or partner with them to develop certain areas of the business. You can even engage in professional networking to start building contacts for your new business.

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