Nov 11, 2022
Advantages & Disadvantages of Buying an Existing Franchise

An idea well conceived is half the job done. But from conception to reality is another tough journey. When we think of a business, we want to hit the ground and get it up and running in very little time. Investing in a franchise might seem like the sensible thing to do for an entrepreneur, given the fact that a business model already exists in place and one only needs to contribute to it. But is it that easy? Let us look at some of the advantages of investing in a franchise.

Advantages of Investing in a Franchise

A pre-built successful business

Starting your own business is harder than running a successful franchise. When you invest in a business that has already been developed, you don't have to worry about setting everything up and running before you can start making money because that has already been done. At that time, your goal changes to enjoying the benefits of their labour! Franchises frequently come with strong backing from their parent firms, and in some cases, they even contribute beginning money, which provides new owners with an assurance in case things don't work out as expected. Given inflation and other risks in the markets of today, that is indeed great. Investing in an established brand may seem like a less intimidating first step for those who are risk-averse than striking out on their own.

Takes less time to get started

One of the benefits that is most appreciated by investors about a franchise is that it requires less time and money to get your business off the ground when you first start it up. When you buy a franchise, you can avoid the need to come up with original brand and marketing ideas or services because the majority of these things will be provided to you by your franchisor.  This allows you to save time and energy when running your business. In many cases, you will also have access to training and be given assistance with marketing. The idea of starting one's own company is terrifying to a lot of people because of the huge costs involved and the risks of failure.  The purchase of a franchise, on the other hand, may help to alleviate some of the anxieties regarding these two aspects; in the event that one of your locations is unsuccessful for whatever reason, you won't be completely on your own and without a fallback!

Easy brand recognition

When you purchase a franchise, you are investing in an established business model that has a track record of being profitable. Your company will receive quick awareness thanks to a well-known brand, which can also assist bring in new clients. If you already have a well-known brand, you won't need to spend as much time worrying about how to promote yourself; instead, you can concentrate on expanding your company.  For instance, Subway has more than 44,000 franchises all over the world; this means that you may start making money right away rather than wasting time attempting to get people interested in what you're selling.

Guidance from the best

The franchisor would have great experience already running the franchise and would be of great assistance to you in understanding the nuances of how to run a successful business. What if you decide to just ignore this and develop a business strategy? Well, it is to your advantage to have a business strategy, but this does not guarantee that your firm will be successful.  You may have reasonable ideas and objectives, but success is still not guaranteed as there may be several variables you haven’t thought of. For example, how much of your own money are you willing to risk losing at the beginning? How long can you go without results? And as an entrepreneur, what actions can you take that, in addition to mitigating risk, will also help your company stand out from its rivals? 

The good news is that there are solutions to these problems; the majority of franchises that are currently operating provide training and support materials for new owners. Have a conversation with local franchisees about their individual experiences, and inquire as to whether or not the company provides new owners with training sessions or an orientation programme.

Now let us look at the disadvantages of investing in a franchise, also from a franchisee point of view.

Disadvantages of Investing in a Franchise

You own a part of a whole

It is important to keep in mind that when you purchase a franchise, you are paying for the privilege of being an integral part of a certain brand. You are not the sole proprietor of the organization; rather, you are renting the name of another person's business. In addition to the upfront costs associated with operating, the majority of franchise owners make their profit by charging outlet owners a modest percentage of total sales.  This implies that the franchise owner will receive a share of the profit that you have worked so hard to generate in exchange for the right to use the franchise name. There will be continuous charges and the more you are successful, the more you would need to pay. These costs could take the form of royalty fees or a share of the profits.

Potential for conflict

The franchisor and franchisee have an advisor advisee relationship. Much like other human relationships, where one advises the other, there is a potential for conflict here too. Now whether the franchisee has a legal right is determined by the franchise agreement prepared by the franchisor. Though the agreement details the obligations that both the franchisee and the franchisor are expected to fulfill, the franchisee possesses very little authority to enforce the franchise agreement. There might be a protracted legal battle before a favorable result for the franchisee. The intimacy of the business relationship between the franchisor and the franchisee makes it more likely that disagreements may arise, whether it be due to a lack of support or just a clash of personalities. This is why a lot of franchisors screen franchisees using personality tests as well.

Lack of financial privacy

The lack of privacy experienced by franchisees is another important drawback associated with franchising. It is highly possible that the franchise agreement will say that the franchisor has complete control over the whole financial ecology of the franchise. The lack of financial privacy that comes with owning a franchise may be considered as a drawback by franchisees; however, if you are open to receiving financial counseling, this drawback may be less of an issue for you.

Closing words

Despite its disadvantages, there are several advantages to investing in a franchise and the disadvantages mentioned pale in comparison to the advantages. The lack of a need for a business model, the visibility on cost and the shorter time to ROI all make it a very worthy investment indeed. If you are a franchise owner and would like to manage your franchisees, talk to us. We may be able to help.

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