Advantages and disadvantages of franchising
Buying a franchise can be a quick way to set up your own business without starting from scratch. But there are also a number of drawbacks.
Advantages
- Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
- You can use a recognised brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the "franchisor".
- The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
- You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same region, though there will be competition from other businesses.
- Financing the business may be easier. Banks are sometimes more likely to lend money to a franchise with a good reputation.
- Risk is reduced and is shared by the franchisor.
Disadvantages
- Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing royalties and you may have to agree to buy products from the franchisor.
- The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local market.
- The franchisor might go out of business, or change the way they do things.
- Other franchisees could give the brand a bad reputation.
- You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
- Reduced risk means you might not generate vast profits.
