34 People have recommended this article.
Buying a franchise is an option considered by corporate employees experiencing downsizing or unfavorable work conditions. Before you take the leap, your About.com Guide for Small Business Information has assembled the pros and cons of buying a franchise.
The International Franchise Association says, "Industry analysts estimate that franchising employs more than 8 million people, a new franchise outlet opens somewhere in the U.S. every 8 minutes, and approximately one out of every 12 retail business establishments is a franchised business." The boom in franchising should continue with aging baby boomers, growing work dissatisfaction and large severance packages. But is the franchise option for you?
Pros of Buying A Franchise
- Turnkey System: A franchise system is a proven system for operating the business and generating profits. If your skills are weak in sales & marketing or operations then a turnkey franchise may be best.
- Franchise Support: Small business owners often have very little support or lack a support team with business acumen. Buying a franchise offers the opportunity to share your challenges with other like-minded entrepreneurs. As franchise companies state, you're in business for yourself, but not by yourself.
- Brand Name: The more established franchises provide a market awareness & brand name to franchisees. This can amount to great savings in customer acquisition costs and allow for more time in the operation of the business.
- Lower Inventory Prices: The collective buying power of a franchise group allows for lower costs in purchasing inventory and equipment. Independent businesses usually have less bargaining power with suppliers.
- Easier Staff Recruiting: Finding good employees is a critical success factor for many independent small business owners. A franchise business with a recognized name will have greater recruiting pull than an unknown business entity.
Cons of Buying A Franchise
- Less Freedom: Franchisees are required to share financial information and conform to uniform operating procedures. An independent business owner makes all the business decisions.
- Royalty Payments: Each and every year franchisees are required to make royalty payments in return for support in operations and advertising. Some franchisers may not provide all the necessary resources for the success of your particular location. Talk to other franchisees for feedback on the level of support they receive.
- Higher Start-Up Costs: Buying a brand name franchise is often beyond the financial capability of many potential business owners. An independent business may be more realistic financially if the owner is willing to focus on building a strong business operation.
- Broken Promises: The franchiser may not have the ability to provide market or field support. Owners can become reactive and expect the head office to solve all the problems. In your own business, the only person you count on is you.
The buying a franchise option works best for individuals who work well in a team environment and have limited business & industry background. For others, the road to "true" entrepreneurship could represent the ideal path to business ownership. Take the time to consider your options. Buying a franchise may be right for you.
*Information above was gathered from www.sbinformation.about.com written by Darrell Zahorsky.
