The Disadvantages Of Franchising

Investing in a franchise is a very common and popular way for entrepreneurs establish their own business quickly and relatively easily. While a franchise can be an excellent choice, offering many advantages over starting an independent business from scratch, it is by no means a "sure thing" when it comes to success. Even the best franchise opportunities come with some disadvantages.

Initial costs

The initial cost of buying into a franchise can be quite high. In general, the more well known the franchise is the more it will cost you to buy in to it. It is not unusual for the most famous franchises to require an initial investment of hundreds of thousands of dollars, and sometimes even more.

If you are like most entrepreneurs and do not have that much cash laying around, you will need to arrange appropriate financing for your franchise venture. Some franchisers will help you obtain financing, while others leave that entirely up to you. In nearly every case, though, the franchiser will require you to put a certain amount of cash down, and/or will limit the percentage of the buy in cost that can be financed. They do this to ensure their franchisees are serious enough to invest their own money in the venture, and also to ensure that the total debt load is not so overwhelming that the franchise location will have trouble being successful.

Strict rules and procedures

It is quite common for franchisers to have strict rules and procedures that must be followed exactly by franchisees. These rules can include big things like logos and color schemes and run all the way down to little things like how napkins are to be folded and what color straws must be used. The franchiser has good reason to pay attention to such details, because the strength of their brand and overall business lies in knowing that each franchisee will follow the rules exactly and create a standardized customer experience.

The amount of control exerted by the franchiser will vary from company to company, and in some cases the requirements can be quite restrictive. For an entrepreneur who goes into business to have more control over their everyday life, it can be extremely frustrating to be required to submit to the parent company's terms and conditions.

Ongoing costs

Most franchise businesses require payment of ongoing fees in addition to the initial cost of the buy in. These fees are generally royalties based on a percentage of revenue as well as costs for other services such advertising, marketing, and general brand promotion.

Pay close attention to potential ongoing costs of any franchise you are considering, because they can add up quickly and cut into the amount of profit you will actually get to keep. Beware of franchisers that require unreasonably large monthly fees or charge a fee for every bit of help and support they offer along the way.

Mixed levels of ongoing support

When an entrepreneur chooses a reputable franchiser, they get the significant advantage of established brand recognition. They do not need to go through the long and painful process of creating a brand, communicating it to the marketplace, and establishing a base of customers. The franchiser has already done that, whether recognition has been established nationally or regionally.

A good franchiser will reinforce the brand recognition on an ongoing basis as well, usually through advertising and promotion. A franchisee typically supports these activities through monthly franchise fees and marketing fees, but the costs are quite a bit less than if the franchisee were to take on these functions independently.

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