The franchise industry constantly reminds us that franchising can create a very profitable career and is a safer than a regular start up. Whilst this is true, Franchise Manager, Lisa Stead looks at the cons as well as the pros of franchising.
Pros of franchising
Brand
Working under an established brand name has obvious benefits for franchisees:
- A respected business name
- Increased security
- A tried and tested format
- Proven systems
- National brand/product awareness
Ongoing help and support
It is in the interest of your franchisor for you to be as successful as possible. When you make money, your franchisor makes money.
Once you have signed on the dotted line your franchisor won’t simply wave you off into the sunset.
Full training programmes and first-hand support will be in place. Your franchisor will help you find and retain customers and have support systems in place to assist with each stage of your journey.
The level of assistance does vary according to the franchisor (and the fees!) – some have 24-hour-a-day helplines, others have representatives on hand for quick visits to solve various problems, and one to one mentoring programmes.
No matter what – a franchisee should not have to struggle alone.
Defined & dedicated territory
One of the main reasons that attract people to franchising (according to The British Franchise Association (BFA))
Franchisors carefully choose the location of their territories/stores/outlets to gain the largest possible amount of custom.
You are protected from having another identical supplier encroaching on your ‘spot’ and avoid any treading on toes.
Greater access to finance
Many franchisors will already have ‘preferred suppliers’ that they have worked with before and who understand the franchise model.
Amongst these suppliers most franchisors will have a recommended bank that are positioned to provide financial support.
As a franchisee, you are looked upon more favourably when it comes to bank loans and overdrafts than if you are an entrepreneur starting from scratch.
The increased security and reliability of a large firm behind you means that banks will often offer significant loans to support the start of your business. Many franchisors will also have template business plans to aid you further in your finance applications.
Cons of franchising
Fees
It is standard to pay a lump sum to purchase the rights to use the brand and to secure your own territory.
The majority expect you to purchase start up materials from your own pocket, and some will state that you have significant working capital before you are even considered as a prospective franchisee.
Franchisors take a percentage of your takings as royalty fees or Management Service Fees (MSFs). This fee is deducted from your turnover, not your profit.
After the initial fixed term, you may have to pay another fee to extend the term and this can be refused if you are not meeting targets
Checking that these costs compare favourably to starting up on your own is key to understanding if a franchise opportunity is right for you.
Their way, not yours
Franchisees gain training, guidelines on how their business should be run. This is a helpful leg-up, however, after your franchise is established you may feel restricted and get frustrated if your plans are hampered by the franchise policies.
You will have to work within someone else’s idea of what is best.
Penalties for ignoring your franchisor’s model can be strong. In fact franchise agreements often stipulate that wild deviation from the model can lead to the termination of your agreement.
It’s still hard work
Many people explore the option of a franchise as a way to avoid some of the hard work of a business start-up.
Whilst it is true that some of the work will have already been done for you, providing a tried and tested methodology, you won’t be able to sit back and just watch the money roll in.
it is not unheard of for franchisees to need to work 60 hours per week or more when establishing their business.
Franchising is not a get rich quick scheme, however, a good franchise should be about addressing your work-life balance in the medium to long-term and change your lifestyle.
