Buying a Franchise: Pros and Cons

Do you want to have your own business? If so, what type of business do you want? Each year, hundreds of people take a leap of faith and quit their current jobs to start their own business. Owning a business is rewarding. However, because 90% of small businesses fail within the first five years, deciding on a successful business, which will result in long-term profits, is hard. To decrease the chances of a failed business venture, many entrepreneurs opt to buy a franchise business.

Franchises consist of a variety of business such as food restaurants, grocery stores, business stores, gas stations, and so forth. Without a doubt, a ton of benefits accompanies opening a franchise business. Yet, there are also a number of disadvantages, which can cause many business owners to doubt their decision. Before taking the leap and buying a franchise, consider the following pros and cons.

Benefits Associated with a Franchise Business

� Foolproof System: When opening a new start-up business, the business owner will generally have to experiment with different marketing and sales strategies to generate customers and profits. Thus, it can take several months before the company begins to make revenue. With a franchise business, corporate headquarters have already discovered a infallible method for making the company succeed. With this said, franchise owners are provided with marketing tools, promotional tools, and other strategies to draw customers.

� Established Customer Base: If starting a brand new business, it may take awhile before you can make a name for yourself. On the other hand, customers are already familiar with companies such as MacDonalds, Subway, 7-Eleven, and so forth. Hence, entrepreneurs choosing to operate a franchise may receive a quicker response than if they had started a new business from scratch.

� Ongoing Support: Many new businesses fail because the owner is unfamiliar with how to successfully run the business, and receives little outside support. This is quite the opposite with a franchise. Franchise owners received constant, ongoing support from corporate. This includes new promotional tools, sales training, and networking with other franchise owners.

Disadvantages of Buying a Franchise

� Strict Franchise Rules: Despite a business owner purchasing a franchise, they are not free to make all the decisions. Franchises have strict guidelines. For example, some franchises do not allow certain types of advertisements such as direct mail or radio spots. Instead, corporate makes all advertising decisions for the franchise. Secondly, franchise owners must adhere to specific prices, and cannot offer sale prices without prior consent.

âÂ?¢ Franchise Fees: Aside from buying into a franchise, owners must also pay annual franchise fees, which is typically a royalty based on the year’s total sales. Some franchises even require monthly fees which are used to pay for ongoing support and advertisements. During the initial months following the opening of the franchise, the extra costs can pose a financial burden.

âÂ?¢ High Start-Up Costs: I once heard that persons who open a MacDonald’s franchise become instant millionaires. This may be true. However, the average start-up cost for a MacDonald’s franchise is approximately $500,000. Even though most franchise owners obtain business loans from banks and other sources, some franchises also require that the owner use some of their own money.