Pros and Cons of Buying a Franchise

Each year, hundreds of thousands of entrepreneurs across the world launch a franchise. If you’re thinking of heading down this road, then here are some critical pros and cons that you need to be aware of:

Franchise PROs:

• Established Business Model: Instead of building a brand from scratch that includes everything from market research to product testing, you can plug into a proven business model hit the ground running. This will not only save you time, but potentially save you tens or hundreds of thousands of dollars. 

• Ongoing Support: Franchisees receive up-front and ongoing support regarding complying with health and safety bylaws, hiring, procurement, quality control, and the list goes on. In addition to head office, you can also get support from fellow franchisees who are familiar with what you’re dealing with (and will be facing in the weeks, months and years ahead). 

• Instant brand recognition: Generating brand visibility can take years and cost hundreds of thousands of dollars; especially in crowded and competitive spaces. Franchises already have an established, recognized brand and marketplace penetration. Strong brand recognition can also help with recruitment and retention.

• Economies of scale: Franchisees typically have much more purchasing power than standalone operations, due to established relationships between vendors/suppliers and the franchise’s head office. 

Franchise CONs:

• High startup costs: established, well-known and successful franchises have high startup costs, and most franchisees need to obtain financing to close the deal. For example, the estimated cost of opening a McDonald’s ranges from just over $1 million to around $2.2 million. 

• Stringent requirements: successful franchises are coveted by entrepreneurs, and as such there is a comprehensive application process that involves a rigorous financial background check. For example, Taco Bell franchisees must have $750,000 in liquid assets.  

• Ongoing fees: Franchisees must pay advertising and/or royalty fees. While the latter is often not that much of an issue because it’s based on profits, the former can be a source of frustration for some franchisees that are obliged to support regional and/or national advertising campaigns, even if they are not generating good results from them. 

• Limited autonomy: As long as the comply with the law and any other agreements (e.g. property management rules, etc.), small business owners are their own boss and can call their own shots. Franchisees, on the other hand, must abide by standardized rules that are set by head office (e.g. specific lighting, hours of operation, office renovation specifications, etc.).

• Limited options: While it’s not inspiring to think about, small business owners who struggle can shut down, or sell their business. Franchisees, however, are often locked into long-term agreements and can only exit their obligation under specific circumstances (and typically with extra costs involved for early termination).

The Bottom Line

Is buying into a franchise the right option for you? That’s not an answer you can get from an article. The best advice is for you to do your homework, get all of the facts, and ultimately make an informed decision that gives you the best chance of achieving long-term success — both professionally and personally.