The Pros and Cons of Owning a Franchise

January 12, 2010 | By

Owning a Franchise, the Pros and Cons
Reprinted with permission from Clemson University Alumni Association.

PROS

• Name Recognition: A recognizable name can bring instant credibility, which can impact positively on sales. Franchisees can benefit from the goodwill built up by all the other outlets bearing the same name
• History/Previous Track Record: An established sales and customer base can provide useful data to analyze customer trends and provide direction.
• Distinctive Business Appearance: The standardization and uniformity of the franchise operation often provide the consumer with safety and predictability. Customers report feeling comfort in knowing what to expect in any geographic area.
• Standardization of Products and Services: The uniform presence of the business operation provides safety and security for customers and meets their expectations.
• Proven Concepts: Since the strategy and operational components that the business is based on are already determined, risk is lessened, allowing operators to build on the basics and grow their own operations quickly.
• Continuing Advice: Available in the form of technical and managerial assistance, as well as ongoing training.
• Established Relationships: The franchiser typically has coveted relationships with vendors, suppliers and distributors, and these relationships can provide volume discounts unavailable to individual business owners.
• Own boss: However, remember that independence is limited by the franchiser, according to the stipulations of the franchise agreement. People with strong drives for independence may find a franchise operation too restrictive.

CONS

• Risk: There has always been an element of risk to franchising. Be sure to research the business skills and track record of a franchiser before making any commitments.
• Identification with Franchiser: Carefully consider your motives for entrepreneurship. If you place great importance on calling something your own, building it from scratch, or feeling strong pride of ownership, you should probably think twice about franchising. Despite your direct contribution, remember that the success of your franchise business may be attributed to the franchiser not you.
• Changing Trends: Given the changing nature of business cycles and trends, even a franchise with a successful track record could quickly turn into an unprofitable venture. Do research on trends and consumer values before spending money on a franchise – even if it has a stellar history.
• Products and Services Offered are Determined by the Franchiser: It is customary for the franchiser to determine the type and quality of services or products offered, as specified in the terms of your agreement. So, if you have a wonderful new idea that could generate significant sales, you may not be able to implement it in your business because of your franchise agreement.
• Franchise Standards: Franchising requires the management of money, people and facilities according to the standards of the franchiser. If you determine a “better way,” it may be difficult, if not impossible, to follow through.
• Franchiser Hype: Because the corporate business climate has made franchising so appealing, there are many unscrupulous businesses that sell franchises through a variety of schemes, or “come-ons.” Protect yourself from falling victim to any of these techniques by being aware of these scams and conducting thorough market research and analysis.

This post was reprinted with permission from Clemson University. For the original article, please go here.

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Comments (7)

  1. Keep in mind that a smart franchisor will want your input to improve the business system.

  2. Good articlt, we try to encourage due diligence. With regard to products and services, we not only allow but encourage new ideas and products. We even offer cash rewards for anything that can help all of our franchisees earn more, work easier or even live more healthy lives by sharing the innovative ideas with all of us.
    Thanks, Jon at Edgemaster Mobile Sharpening.

  3. Nice summary on the overall issues to think before becoming a franchisee (Zee). We would also recommend that Zee’s look for franchisors (Zor’s) that provide systems that support the Zee with insight into how to improve their operation including franchisee scorecards and dashboards that measure Key Performance Indicators (KPI’s). ZeeWise is the leading provider of Franchise Business Intelligence tools to franchisors so before you sign up with a concept ask them to show you what type of tools they can provide to help you drive better results from your business. If they don’t offer any type of tools, think hard on how you will be able to gain insight into your own site operations without a system wide tool that can provide you with the data and metrics you need to identify and apply best pratices.

  4. Steve

    This doesn’t happen, does it…

    “Franchiser Hype: Because the corporate business climate has made franchising so appealing, there are many unscrupulous businesses that sell franchises through a variety of schemes, or “come-ons.” Protect yourself from falling victim to any of these techniques by being aware of these scams and conducting thorough market research and analysis.”

    Naaa, that would never, ever happen. ;D

  5. Nice post and this mail helped me alot in my college assignement. Gratefulness you on your information.