Gary Rigby - The pros and cons of franchise ownership
There are a number of key elements prospective franchise owners are looking for when considering buying a franchise; they are after answers to specific questions such as what do I pay and what do I receive initially with regards to training, support and the key elements of the franchise package? Typically this is answered within the Franchise Prospectus and further clarified in the Franchise Information Memorandum.
Prospective franchise owners would need to know what they receive financially after they have made the initial investment within the franchise; this could be a number of elements such as core deliverables: i.e. website training etc., and non-deliverables such as licence fees.
It could also include establishment costs to set up the business, be that retail-based premises or a commercial vehicle franchise, as an example. The rewards for operating a franchise are typically indicated within a financial model ideally depicting expected turnover figures of the existing business to be replicated, together with the appropriate disclaimers if these figures are projected. The third element of course is what support is provided to the franchise network for the fees received by the franchisor from the franchise owners; again this needs to be commensurate with the level of management services fee paid.
There is a school of thought that believes this element is the most attractive part of a franchise offering as true business builders/entrepreneurs will be less concerned with this aspect, whereas individuals that have never run or operated a business before place a high value on this support.
Pros to a franchisee
- The provision of the specialist knowledge in relation to the franchise offering.
- The use of the franchisor’s corporate identity.
- The franchise owner is independent as a business operator but has the support of the franchisor.
- The franchise owner will receive specialist support in all aspects of the business which can include training, site selection (if commercial premises are required), purchasing of equipment and stock if necessary within the franchise.
- If the company is a national company already, the kudos and credibility can also be a factor for the decision to buy into the franchise business, as the brand is established.
- The ability to call on the franchisor’s experience and knowledge within the sector as the business develops; this can be extremely beneficial from a marketing, sales and operational stance.
- There is a higher proven success rate within franchising over start-up sole businesses.
Cons to a franchisee
- The franchisor may make decisions which could be detrimental to the performance of the franchisee.
- Within the Franchise Agreement there will be certain restrictions which the franchise owner must abide by; typically they are for the good of the franchise network.
- It is important to assess the character of the franchisor, in addition to their ability to deliver the key elements of the franchise package, and, more importantly, the ongoing support services.
- The credibility of the franchise is beyond the control of the franchise owner; the franchisor’s actions will have a bearing on the brand and its image and perception by its customers or clients.
Both the advantages and disadvantages must be considered by the franchise owner when they are making the decision to purchase a franchise opportunity. It is important that the franchise owner also looks at their own particular skill-set and attributes and decides whether or not they meet the profile of the franchise owner for the particular franchise offering being considered.