Franchise Opportunities
Pros and Cons of Franchise Businesses by Jim Brown
For the individual owner, there are definite advantages to
franchising, some of which are outlined in the list below.
Pros of
Franchise Businesses
Well-known trademark, either regionally or
nationally, and its cumulative goodwill - saving the business owner the cost of
creating and advertising a name that customers already recognize.
Established business framework - minimizing the startup problems and
guesswork involved in starting a new business.
Well-tested sources of supply
and service - saving time and trouble in finding suppliers of needed products
and equipment.
Ongoing sales and marketing assistance - franchisors have
proven, existing, and successful systems of advertising and marketing.
Financial assistance - banks and similar lending institutions are willing to
lend money to a business that has the backing of a successful franchisor. Most
franchisors have direct financial assistance or help in finding adequate sources
of financing.
Reduction of risk - you are buying into an established concept
so the risk of failure is lower.
Ongoing research and development - most
franchisors constantly research and look into vital information such as
competition, product demand, seasonal variations, and community attitudes.
Site selection and business support - the franchisor helps with selecting a
suitable site location, building construction design and supervision, employee
training, and operational support.
Proven operating methods and procedures
for creating and selling the product.
Standard quality, uniformity, and
desirability of the franchisor's product or service.
Collective buying power
and centralized purchasing system - franchises may be able to purchase supplies
at a reduced cost since the franchisor can purchase in bulk and pass the savings
to the franchisees.
Furthermore, with franchising expansion seems to come
more naturally. Operating a successful franchise may quickly lead to building a
second and then a third business, and so on. In fact, some franchisees own all
businesses of a particular franchise in an entire geographical area. Fortunes
have been built this way.
However, despite the advantages to
franchising, buying or starting a franchise business is not for everyone. Some
of the disadvantages to franchising are discussed in the list below.
Cons
of Franchise Businesses
Loss of control and freedom - since the
franchisor's standards have to be adhered to, a franchisee may have limited
scope for individual personal initiative.
Ongoing royalties could be as high
as 10% (or more) of revenues - this amount could determine whether you business
is profitable or not.
The initial franchise fee can be quite substantial. It
can range anywhere from $4,000 to $20,000 and, in some cases, up to $50,000!
Advertising fees - there is usually a fee for advertising on a regional or
national basis. If the franchisor does not make the best use of your advertising
dollars, this could be a waste of money.
Required Signage - most franchisors
have a developed sign package that the franchisee is required to purchase. This
can be very expensive for the small business owner.
The franchisor's
problems are also your problems - for example, you could have a serious issue if
there was a conflict between the franchisor and a major supplier.
In summary,
despite the disadvantages of owning a franchise business, it generally offers
real advantages with considerably reduced risks over going it on your own. All
franchises are not created equal and research and due diligence should be done
before starting or buying any franchise business. Franchising cannot guarantee a
profit. You, as the business owner, are ultimately responsible for the success
or failure of the venture.
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About the Author
Jim Brown is Director of Marketing at GlobalBX, http://www.globalbx.com . Buy a Business or Sell a Business on GlobalBX, a free business for sale listing exchange that provides a confidential forum to facilitate the buying and selling of businesses with thousands of businesses and franchises for sale as well as comprehensive business information for business buyers and business sellers. Lists businesses for sale, business brokers, and franchise opportunities.
In a franchise, an existing business gives another individual or group the right to open a duplicate business. In exchange for that right the individual or group pays the existing business owner some predetermined amount of money. The franchisee benefits greatly by inheriting a recognized brand along with the support and knowledge of the client base and market research the franchiser has already established. The franchisee must simply plug his or herself into an already successful formula. The franchise roften provides marketing and advertisement for the franchisee as well.
Franchise Opportunities are available in a wide range of businesses from fast food to cosmetic sales to health clubs. Because of the support generally accompanying them, franchised businesses have higher success rates than do businesses started from scratch.