Owning a Franchise: Pros & Cons
Creating your own business may seem enticing, but if you are not ready to start from scratch, then owning a franchise could be right for you. Owning a franchise has two parties – the franchise owners (franchisees) and the actual corporate brand (franchisor). Once you become the investor, or franchisee, you will be able to sell goods and services that have instant name recognition in the market.
However, before you sign the dotted line to become a franchisee, you should weigh the pros and cons of establishing your own franchise. Furthermore, it’s a good idea to obtain legal advice and representation throughout this process to protect yourself and your investment.
Pros of Owning a Franchise
One of the most prevalent advantages to owning a franchise is the instant name recognition and established brand understanding. Your new franchise business will not have to prove itself; the previous franchisees have already done that for you. For instance, no one wonders what products McDonalds sells or what service a UPS store provides. In contrast, if you start your own café, consumers may be hesitant at first to try something new.
Next, owning a franchise saves you time up front. The market research is done for you. The franchisor knows what the demand for their goods or services is, and they have already experimented to see what works. You will instantly start your franchise with a proven system of operation and training protocols that you can feel confident in. You will know the methods of marketing the product, and the tedious work of choosing miscellaneous things such as brand logos and signs are already chosen for you.
Another advantage to owning a franchise is with a reduction in risk. Note that there will always be a certain degree of risk involved when investing in an entity, but it will be considerably less with a franchise. A franchise gives you a balance between being independent yet having a support system from the franchisor that gives valuable guidance and insight. Since the market research has already been done for you, you will know what works and what does not when it comes to marketing and investment in capital. The corporate brand is well-established, meaning it’s already been tried and tested before you even own the franchise, resulting in less trial and error.
Cons of Owning a Franchise
Unfortunately, all good things do come with a cost, and the costs of owning a franchise can be plentiful. In exchange for obtaining the benefits of the opportunity to use the brand name, there are both initial fees and continuing “royalty” fees. The former has varying ranges, dependent on which franchise it is. It could be as low as $10,000, but upwards of $100,000. Once you have cleared the initial fee, you will incur ongoing costs of using the brand name and its privileges. Even if you are not yielding profit, you as the franchisee will still need to pay these royalty payments. Last but not least, there are advertising fees that are subject to be allocated to national advertising instead of your specific franchise.
Franchisor Oversight and Restrictions
As a franchisee, you are subject to what the franchisor decides. This oversight is to maintain uniformity and brand recognition. These include site approval, restrictions on products you sell, and design standards. It takes some of the creativity out of starting or owning your own business but can alleviate some of the risk as well.
Along with the franchisor controls, a franchise owner will have contractual obligations to fulfill. These include mandatory terminations or nonrenewal of n agreement. You as the franchisee will have limited say in the future of your specific franchise.
In conclusion, you should first figure out what your business goals are. Do you want to start from the ground up to make a name for yourself and your brand, or are you more comfortable with a ready-made brand you already know and love? No matter what you decide, Dye Culik PC can guide you. Our attorneys have worked with business owners, startups, franchisees, investors, and entrepreneurs of every type. If you have a question about your business, we're here to help.