- Introduction
- What are you paying for when you buy a franchise?
- What happens when you buy a franchise?
- What are the down sides?
- Conclusion
Introduction
You can start a business with very little money up front. It’s quite possible to begin with a phone, a pen and a pad of paper. There are businesses that launched that way, growing and becoming more sophisticated over time. We know – it’s what we did!
So why would someone choose to pay money to start a business when they can do it for free?
It’s a good question.
I’m going to answer it in this blog posts. I’m going to tell you the upsides of buying a franchise and the downsides too. It could be that a franchise could be the dream solution for you. Or it could be your worst nightmare.
Forewarned, is forearmed. So let’s dive in to it.
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What are you paying for when you buy a franchise?
You want something for your hard earned money, right? A good franchise provides multiple tangible assets that will provide you with a great deal of value for money.
In some ways, a franchise is a `business in a box’ or perhaps more accurately it’s the acorn and instruction manual that – when operated properly – will grow steadily, predictably and with a greater deal of certainty than you’d get if you started from scratch with little or no knowledge and not much else besides.
Buy a franchise and you should expect most (if not all) of these benefits:
- Brand Recognition: The use of an established brand name and trademarks which are already known and trusted by consumers.
- A proven Business Model: Access to a tried and tested business model with a track record of success.
- Training and Support: Comprehensive training programs for the franchisee and their staff, as well as ongoing support in operations, marketing, and management.
- Operating Systems: Access to proprietary operating systems, including software for inventory management, sales tracking, and customer relationship management.
- Marketing and Advertising: National and regional advertising campaigns managed by the franchisor, along with marketing materials and strategies tailored to local markets.
- Product Supply: Assistance with sourcing products, often at discounted rates due to the franchisor’s buying power, and access to exclusive products or services.
- Site Selection and Development: Help with selecting the best location for the business and guidance on the development and design of the store or facility.
- Ongoing Research and Development: Continuous improvements and innovations in products, services, and business practices to stay competitive.
- Operational Support: Regular field support visits, access to a franchisee network, and a dedicated support team to help with day-to-day operations and troubleshooting.
- Financial Assistance: Guidance on financing options, and in some cases, access to franchisor-provided funding or relationships with preferred lenders.
- Quality Control: Established standards and procedures to ensure consistent quality across all franchise locations, which helps maintain the brand’s reputation.
- Initial Inventory and Equipment: Provision of initial inventory, equipment, and supplies necessary to start the business.
- Legal and Regulatory Compliance: Assistance with navigating legal and regulatory requirements specific to the industry and location.
- Franchisee Community: Access to a network of other franchisees, providing opportunities for knowledge sharing, collaboration, and support.
In short you should have everything you need to maximise your chances of owning a succesful business. And if you don’t have the information you need…you should have the support of your franchise community as well as the franchisor who will be on hand to make sure you thrive and get the best return on your investment.
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What happens when you buy a franchise?
Once you’ve bought a franchise, you’ve got a plan that will tell you step-by-step what needs to happen to lead to you owning a successful, profitable and interesting business that you enjoy working on.
You’re not going to have that `lost’ feeling that many new new business owners get when they may sit at their desk, throw their hands up in the air and say `I don’t know where to start?’ or `How do I fix this problem?’ Because they have a plan, instructions, support and a brand that just needs adhering too. They’ll know it works too:
Because there are other people following this plan and thriving.
It can be very reassuring and comforting – compared to a new business owner who is awake at 3am trying to work out the solution to a particularly thorny issues they need to resolve.
Starting a new business on your own can be seriously daunting. Buying a franchise can provide most (if not all) of the guidance you need from people who know it all inside out – what works and what doesn’t. Very often they’re the same people who built the business model you’re buying into to enable you to do what they do, albeit without the time, expense and shear work of learning by trial and error.
See it as the difference to having a map and a compass to your destination…or being told to get to a destination you can’t see and have no idea how to start.
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What are the down sides?
It’s all too good to be true, isn’t it?
Up to now, I’ve told you lots of reasons why buying a franchise is a good idea. But. Here are ten reasons that buying a franchise could be a bad idea for you:
- A lack of Independence: Franchisees must follow the franchisor’s rules and guidelines, which limits their ability to innovate or make independent business decisions. Some people would rather struggle if it meant the complete freedom to forge their own path.
- High Initial Costs: The upfront franchise fee and initial setup costs can be prohibitively expensive, which may not be feasible for everyone. It could also be you are uncomfortable with the thought of a debt that needs to be paid off.
- Ongoing Fees: Continuous royalty and advertising fees can eat into profits, making it difficult to achieve financial independence. It’s an ongoing cost you’re going to have to pay unless you start from scratch.
- Contractual Obligations: Franchise agreements are legally binding and often long-term, making it hard to exit the business without significant financial penalties. Your situation can change in an instant and being tied into something can be difficult if this happens.
- Limited Creativity: Franchisees must adhere to the franchisor’s branding and operational standards, which can stifle creativity and personal expression in the business. If the franchise doesn’t `gel’ with your own values, it may not be for you!
- Dependent on Franchisor’s Performance: The franchisee’s success is tied to the franchisor’s overall brand reputation and market performance, which can be risky if the franchisor encounters problems. This could mean that no matter how good you are, you are potentially at risk.
- Territorial Restrictions: Franchise agreements often include territory restrictions, limiting the franchisee’s ability to expand or operate outside a designated area. This is a potential limitation on your business growth.
- Lack of Flexibility: Franchise systems can be rigid, with little room for adaptation to local market conditions or changes in consumer preferences. You could be left feeling there are opportunities that you are forced to discount.
- Potential for Conflict: Disagreements between the franchisor and franchisee can arise over operational issues, support, and compliance with the franchise agreement.
- Resale Challenges: Selling a franchise can be more complicated than selling an independent business, as it typically requires franchisor approval and adherence to specific terms.
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Conclusion
As I said at the start of this post, buying a franchise could be a dream come true for you…or your worst nightmare.
The good news?
There are a huge number of franchises out there that can suit a large number of people. If you’re amenable to the idea of a franchise at all…there’s almost certainly one out there for you!
Regardless of whether a franchise is for you or not…if you like the idea of running a business – do your research. It’s frustrating, exhilarating, annoying, fun but if you embrace it you’re going to love it!
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