The Downside of Franchising

The Downside of Franchising

If you are considering starting your own business, you have undoubtedly considered the prospect of franchise ownership. There are many undeniable benefits to hitching your wagon to a proven winner, but there are no guarantees and everything comes at a cost. So how do you decide if franchise ownership is right for you, and what are the realities of franchising?

Financial Considerations

Starting a business is never cheap. The costs of equipment, labor, advertising, building and property all add up very quickly. It can be overwhelming for even the most savvy businessman with the most solid business plan. When you take on a franchise you also take on additional costs that can be a real drain on your budding business’s earnings.

Franchisor’s provide a solid service, providing you with a proven business strategy and a network of support, but they do so at an associated cost. You will be expected to cough up a franchise fee as part of buying into the franchising organization. Beyond this additional initial cost, there are long term financial commitments to your franchisor, as well. A percentage of your monthly earnings over the life of your business will have to be paid back into the franchising organization. Royalties for use of the franchisors trademark, and ongoing fees (such as those for marketing) can be a significant drain on your returns, especial in the tumultuous initial period of developing your new business.

Lack of Autonomy

When you buy a franchise, you surrender a significant degree of control over your business. As a franchisee you do not have the final word in how your business is run, but rather are constrained by your obligations to the franchisor. You are playing their game and must abide by their rules. While it is true that franchisors want their franchisees to succeed, and thus gear their guidelines toward the overall success of the business, the lack of autonomy provided by franchising can prove frustrating and at times detrimental. If one of the appeals of business ownership is the ability to do things your way and in your own time, then franchise ownership is probably not for you. As a franchisee, you will always be ultimately accountable to an authority greater than yourself.

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Inflexibility

Franchise ownership also offers a very limited degree of flexibility in the day-to-day operations of your business. When you contract with a franchisor, you agree to run your business according to their game plan. There is often little or no room for variation as to the procedures regarding products and services. The franchisor is motivated to provide a uniform front across the entire range of their franchising territory and expect you to follow their specific guidelines to ensure brand uniformity.

To further this uniformity, franchisors often require franchisees to obtain supplies for pre-approved sources. This means that you may end up having to pass up the most cost effective or convenient supplier to go with one approved by the franchisor. Such loss of flexibility can be an added financial burden on your business. With all of the obvious and alluring benefits of franchise ownership, it is imperative to keep a realistic view of franchising when deciding what type of business would most suite your individual needs. It is important to know exactly what you are giving up for the franchising security net. Whether as a franchise or as an independent business, there are never any guarantees of success, but the constraints of franchise ownership are certain.