Owning a franchise isn't for everyone.
And, while it's true that military veterans can make great franchise owners, there's no guarantee that just because someone is a veteran they'll rock in franchising. I wish that wasn't the case-but it is.
Let's look at a few pros and cons of owning a franchise.
Pros Of Owning A Franchise
A business system-the franchise system, is already in place for you to use. Hopefully it's a proven system. No guarantees. But, there are ways to find out if the franchise system you're interested in becoming a part of are in fact, good systems. Like franchise research.
You are provided with a training program to help you with everything you will need to know. The franchisors formal training program will take you through all the steps necessary to get your franchise business up and running.
A franchisor’s technology budget is probably larger than yours, so you should expect a lot of great tools for you to use in your business. But not just any tools...any technology. You should expect to have great technology at your disposal. All the best franchises have the best technology money can buy. Or, should.
Franchisors have marketing plans and advertising templates at the ready for you to use from day one in your new franchise location. You are expected to use them, and (in the beginning especially) they'll help to get your name out to the public in your geographical territory. In addition to helping their local franchisees...you, the top franchisors invest heavily in web advertising to not only attract new franchisees-but to keep their brand front and center.
Today's franchisors have support systems in place to help you and your franchise business thrive. From in-house personnel to field reps that visit you in person, all the support tools and people are there. It's a great feeling to know that you won't be alone as a franchisee.
6. Real Estate Department
Franchisors have the resources to help you with site selection. Some of the major franchisors have in-house real estate departments. If the franchise you choose doesn't, it's fine, because in most cases, the franchise team has commercial real estate connections in your local market.
7. The network
Franchisors have a built-in network. That's right; other franchise owners who like you, have invested in the franchise opportunity are together in this. They have experienced things from the front line, and can help you out with most of the problems that arise...especially at the beginning, when you first open your franchise business.
Cons Of Owning A Franchise Business
1. You pay an upfront fee for the right to use the franchise system
The fee...the franchise fee, ranges from around $20,000 up to $100,000 or more. The average franchise is around $35,000 though. This upfront fee is a one-time one. It's the cost of entry when you buy a franchise. It's really a license fee. It is a lot of money. Paying an upfront fee does raise the price of going into business yourself..of being the boss, as you wouldn't have a franchise fee if you had just started an independent business.
2. You must pay royalties
That's right. In addition to the upfront franchise fee, you're required to pay the franchisor a percentage of your sales each and every month. For example, if you gross $50,000 a month...your sales figure, and your royalty percentage is 5%, you'll be writing a check to the franchisor for $2500 that month. Now, multiply that by 12 months. That's $30,000 a year that's due to the franchisor.
Bonus: You'll probably be required to pay into a national advertising fund. That amount is usually 1-2% of your gross sales. So, add that on, too.
3. You must follow the franchisor’s rules
There is not much flexibility as a franchisee. There's not supposed to be! Make sure you are 100% okay with following rules...lots of them.
4. You must buy from the franchisor, or their approved vendors
You may be required to purchase your inventory and supplies from the franchisor or their approved vendors. Even if you can find some of the stuff for less money elsewhere. In most cases, the prices are pretty competitive, but sometimes they're not. Ask some of the current franchisees how the pricing is. They'll tell you with no hesitation.
5. You must use the franchisor’s logos, and advertising materials
Using the franchisors signage, logos, and colors etc. are part of what you're paying for. They're all licensed to you...for you to use. If you're thinking of getting all creative and going against the grain here, don't. You represent the brand you bought into. A strong brand is what helps make a strong franchise business in most cases.
6. When you sell your business, the franchisor must approve the buyer
When it comes time to sell your franchise business, you can't just sell it to anyone with money. Franchise headquarters must approve the buyer, and they'll vet the person just like he or she was a new franchisee buying a new franchise.
The Bottom Line
Just like anything in life, there are pro’s and cons to everything.
In the case of franchising, the pros must outweigh the cons, in order for you to buy into the idea of franchising. The idea of paying a fee up front. The idea of paying fees to headquarters each and every month for as long as you own the franchise business.
But, hey; you're investing in someone else’s business system...someone else's ideas. The key words here; someone else’s. Unless you're the inventor or idea person, and have a couple of hundred thousand dollars...the money it takes to put together a franchise concept, you'll end up as the franchisee.
It's not really so bad to leverage someone else’s system. Doing so will probably get you to market faster. And, the potential for making mistakes is minimized.
It's up to you.