The pros and cons of owning a franchise
Is franchising really the right route into self-employment for you? Derin Clark looks at the pros and cons of franchising to help you make an objective judgement about whether or not you are suited to being a franchise owner.
The fact that you are looking at this website probably means that you are seriously thinking about owning a franchise. While looking through the variety of opportunities available, you can easily become caught up in the idea of owning a successful franchised business. However, you must keep in mind that franchising is not the right option for everyone.
To help you decide whether or not franchising is the right route into self-employment for you, here are some of the pros and cons of franchising:
Pro: a proven business model
One of the main benefits of owning a franchised business is that you are able to follow a tried and tested business model. Before franchising the concept, the franchisor will have overcome any problems involved with the business model, meaning that any costly mistakes will have already been made.
As well as this, if the franchise has a number of franchise owners, the franchisor will be able to provide you with an accurate prediction about how much turnover and profit you can expect to achieve. This will not only help you when creating a budget, especially for the first trading year, but will also help you get funding from the bank.
Furthermore, many franchises have been operating for a number of years and will be recognisable to potential customers, so instead of building up brand recognition in your first months of trading, you can concentrate on running and growing your business.
Con: long working hours
Just because you are following a proven business model it does not guarantee that your franchised business will be a success. Like all businesses, owning a franchise takes a lot of hard work. New franchise owners can often find themselves having to regularly work long hours – including in the evenings and weekends – which can put a strain on family life. This is why most franchisors will insist that you have the full support of your partner. The work put into operating a franchise does not end once business hours are over, as it is usually the franchise owner’s responsibility to do the administrative and marketing work as well. Once the new business has been established many franchise owners find they can start to relax the number of hours they work.
As well as this, remember that when you become self-employed you will no longer receive sick pay and annual holidays. To compensate for this, it is important to budget into your financial planning funding in case you become unwell and cannot work.
Pro: rewarded for hard work
Many franchise owners like the fact that they are rewarded for the amount of hard work they put in. Often employees feel that they work hard only for their employer to reap the benefits, while franchise owners often report that the amount of hours they work is reflected in how successful their business, and profit, is.
Before you decide to commit to becoming self-employed you need to be honest with yourself about whether or not you have the self-motivation, dedication and work ethic needed to operate a successful franchise. There is no point in paying the franchise fee, going on the training course and setting up a business only to sit back and do the minimum amount of work needed, as you can almost guarantee your franchise will fail.
Con: ongoing fees
Prior to investing in a franchise, it is important to realise that as well as the initial franchise fees, you will be required to pay ongoing fees to the franchisor. These are usually paid either as a percentage of your turnover or as a specific annual sum.
Normally this money will go towards ongoing training and support programmes, such as a national marketing campaign or training courses to ensure you have the latest skills and information needed to run your business successfully. The amount you have to pay should reflect the quality of the support you receive. To get some idea of how much you will have to pay and what the money is used for, it is a good idea to speak to the franchisor and existing franchise owners in the network about this. If you don’t think you will get value for your money, seriously reconsider investing in the franchise.
Pro: training and support provided
Support and training are an important part of joining a franchise network. A common saying within the industry is that ‘franchising is going into business for yourself but not by yourself’, and for many people having the backing of an experienced franchisor is what gives them the confidence to start their own business.
At the very minimum, most franchisors will provide either a one or two week training programme before a new franchise owner launches their business. This training can be either classroom based, in the field, or a mixture of the two depending on the franchise. Franchisors then tend to provide support during the lead-up to and the launch of the business, for example providing supplies for pre-launch marketing campaigns. After the launch, many franchisors provide ongoing support through telephone and internet help, and some will also send out support staff to meet franchise owners every few months to ensure their business is on track.
Con: business restrictions
Having a franchisor backing you up is great for people who want to start their own business but lack the confidence to do it alone. However, if you are the sort of person who wants complete say over how your business is run, franchising is probably not for you. As part of the legally binding Franchise Agreement, you will have pledged to follow the franchisor’s business model exactly, meaning that you will be required to sell the products and services decided by the franchisor. If it is a retail franchise, the franchisor will have control over the interior design and layout of the property and may even restrict what suppliers you use.
Some people will find the amount of restrictions over their business frustrating and you should be completely honest with yourself if you feel comfortable with this before signing a Franchise Agreement.
Franchising is not a risk-free way of owning you own business, not only does it involve a lot of hard work and long hours, but you must also have confidence in the franchise you have invested in. For many people franchising provides the perfect opportunity of becoming self-employed but with the backup and support they feel they need. However, for some people franchising is too restricting. Each person is different, so only you can decide whether or not franchising is the right option for you.