Trying to start your own business from scratch in America is tough. That’s especially true if you’ve never run a business before. Most businesses fail from a lack of experience by the owner(s). They overspend at the start running into working capital issues through underinvestment. Also, they anticipate sales revenues coming in higher and sooner than is realistic. Few businesses survive the first year or the ones that follow.
Franchising provides a proven business model and systems to help new business owners avoid the many pitfalls inherent in starting a business. It removes much of the guesswork. However, it’s also not foolproof, which is a point that franchisees often miss.
In this article, we look at franchising a bit more and see whether it makes sense as a valid business approach.
Franchising 101
The idea with franchising is that the buyer of the franchise gets a business system, a brand and a distribution system all in one. They don’t have to figure out what products to sell – this is all worked out for them. They also don’t have to come up with a brand name and worry whether it’s already been registered and trademarked. Also, the various business systems that make companies hum don’t have to be invented by trial and error either.
However, not everyone understands franchising advantages and disadvantages. It’s not all good news. Speaking with Larkin Hoffman, a legal firm with plenty of experience working with franchisees, is eye-opening.
What Are Some of the Advantages of Franchising?
There are many advantages to the franchise model:
- Higher likelihood of business success
- A proven business model
- Products that consumers’ want
- Already established brand
- Advertising paid for by the franchisor
- Ability to talk with other franchisees
- Systems and processes already tested and followable
Franchising when you have deep enough pockets to secure a well-established brand and a good location as a starting point has a lot to recommend it.
What Are Some of the Disadvantages of Franchising?
Franchising is expensive. You’re not buying the franchise for the use of the name, its systems, and supply chain, but there are fees taken out on a regular basis. It’s like having a silent partner who’s taking their cut and you can never buy them out!
Not all the ideas from the head office will be brilliant. Some of the franchise stores or restaurants will disagree with them but have no choice than to offer them to their customers. They own their business, but they don’t have complete control over it at the same time. That doesn’t sit right with every owner who often craves complete independence.
Not every franchise is a good one. Some don’t operate ethically, run into difficulties and tarnish the brand. Others get into legal difficulties which affect all the franchisees in their system too.
Some franchise operators provide the bare minimum when it comes to systems, product knowledge or general assistance. This varies enormously across the industry. An enhanced level of support from the head office can make or break the success of a venture.
With franchising, the news is mostly good. They’re expensive to get into with substantial upfront costs for the bigger brands, but the significantly higher likelihood of ending up with a profitable business usually makes up for that.