The Advantages and Disadvantages of Franchising: What To Consider Before Starting a Franchise
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Originally Posted On: https://www.franchiselocal.co.uk/news/advantages-disadvantages-of-franchising/
Franchising is one of the most common ways for an entrepreneur to start a business, but it comes with many advantages and disadvantages. Before launching a franchise, weighing all the pros and cons is critical. A good entrepreneur will read extensively, talk to friends and financial advisors, and research the area they wish to establish.
We hope to make the process easy for you. This article will break down the various peaks and valleys of the franchising world.
What is a Franchise?
A franchise is an opportunity that offers people a chance to trade and operate a business under an established business name by using the business’ brand and consumer base.
Franchising is an exciting business opportunity since it mitigates some of the risks of starting a business but still allows the entrepreneur to become a business owner.
Challenges of Starting a Business
The prospect of owning your own business can be both exciting and daunting. It’s well-documented that many new businesses fail to thrive and end up closing down in their first few years of trading.
Entrepreneurs can benefit from franchising as they start their independent careers as franchisors offer trialed and tested business models.
Many people also struggle with how to develop a profitable business model. They would prefer to get to work immediately rather than spend lots of time working out the ins and outs of a business model.
This is where franchising comes in. An established franchise provides a ready-to-go business that provides support for franchisees.
Advantages of Franchising
As a business structure, franchising comes with many advantages and fewer risks. When starting in the business world, it is helpful in the long term to have a support base.
Let’s explore the main advantages of franchising.
1. Becoming Your Own Boss
Everyone likes the idea of answering to themselves. Owning a franchise allows you to be your own boss. Whilst you will need to serve your customers and adhere to the franchise guidelines, you will still be your own manager: the person who makes the decisions and pushes their business to become successful.
As its owner, you will have the autonomy that comes with business ownership, with all the resources and opportunities that come with it.
2. Improved Work-Life Balance
Being in a franchise is like being in business for yourself, but not all by yourself. It is much easier to set a flexible schedule and work from home since most companies run efficiently.
This appeal is enormous to potential business owners. When you have a support system, you are far more likely to find success and grow your business. r.
3. Accessing An Established Business
With franchises, you can access a well-established business in the UK. A franchise comes with brand recognition and trust so that customers choose you.
Another huge advantage is that all the franchise systems are firmly in place, meaning you don’t need to work out what works best. Your franchisor will review and refine everything so that you can access a proven system.
4. Having a Package Of Support To Success
When it comes to success, no man is an island. Franchisors spend significant amounts of time and money preparing a support package to help you learn about your new venture and make it successful. This package is offered as part of your franchise; you won’t need extra cash to pay for it.
This support is that it is tailored to the brand and will provide ongoing insight and troubleshooting so that you don’t ever feel left out in the cold. Most franchisors also offer a business mentor you can contact whenever you have an issue; that way, you can solve queries before they become problems.
5. A Well-Known Brand That Consumers Trust
If you are considering a franchise, you know the importance placed on brand recognition. Most franchisees look to get the most well-known brand for their budget, which drives customers through the door. Thus, profits.
Franchises help you skip a business’s initial hard step with an immediate brand awareness and customer base.
As consumers, we look for what we know. If you deliver a recognizable, trustworthy brand, you will likely enjoy a significant profit.
6. Investors That Want to Help
Business funding and finances are some of the most significant obstacles a business owner will face. Many excellent business ideas fail to get off the ground due to a lack of funding.
The reason for this is simple; investors don’t want to throw their money away. However, this can be an advantage of franchising because investors are far more likely to invest in a business that is proven to be successful. This brand knowledge will allow them to envisage what you offer and give them faith in believing you have a business model that will work.
7. Flexible Working Opportunities
Franchising offers an entrepreneur the opportunity to work flexibly, including remote working or home working opportunities.
This is one of the most significant advantages of operating your own franchise business because you are responsible for your work hours and activities. If you wanted to take a holiday or schedule work around childcare responsibilities, franchising could be a good option.
8. Good Working Business Relationships
Another one of the clear advantages of franchising is getting access to the business relationships that the franchisor has already developed. From suppliers to banks, you can tap into the hard work that has gone before you and use it to make your business a success.
Many franchisees will comment on how good their relationship is with other businesses. This is because it all comes down to them being able to trust that you will pay your invoices on time and that you will be able to offer them lots of repeat business as time goes on.
9. A Proven Business Model
Knowing if your business model will work when you start on your own is virtually impossible and brings a high chance of failure.
With a franchise, you don’t need to worry; the franchisor will teach you their business model to follow and be safe, knowing that it is proven to work. You should not have many bumps in the road as the franchisor will have already worked those problems out, leaving you with a business that will work if you are willing to put in the effort.
10. Ideal for Those Venturing into a New Industry
You don’t need to have experience in the industry or field of your would-be franchise business to thrive. Franchisors often provide extensive support and training to help new entrepreneurs to understand the brand/company’s operations and business model.
When you enter a business model that has been operational for years, you benefit from their knowledge, trade secrets, and experience in the field, increasing the likelihood of success for your new business. A franchise is an excellent option if you don’t wish to build your business from scratch or can’t afford to invest time before it becomes profitable.
11. Reduction of Business Risk
As successful businesses, franchises are more secure than new standalone companies since a larger and more established institution backs them. Their business model has been tested and tweaked for various markets, and they will equip you to succeed, depending on your franchise locations.
For this reason, securing financing for a franchise business may even be more accessible than for independent companies. Lenders consider franchises safer, especially if they have a long history of success.
12. Customer Loyalty and Brand Recognition
Getting loyal customers is one of the most challenging aspects of setting up a new business.
By joining a franchise, you bypass much of the groundwork of building consumer awareness, trust, and loyalty. You immediately have access to a recognised brand, its loyal customer base, and even potential employees. For this reason, starting a franchise allows you to become profitable quicker by offering more significant revenue right from day one.
13. Economies of Scale and Buying Power
Once you join a franchise, you can take advantage of the franchisor’s established relationships with suppliers. You are more likely to access supplies at a lower price by leveraging the franchise’s economies of scale.
Your collective buying power also means you can negotiate for more lenient credit windows, which is crucial to maintaining a young business’s cash flow.
14. Operational Support
Joining a franchise will provide you with a franchise network. You can expect extensive operational support even before opening.
Your franchisor can advise and assist with pre-opening operations such as site selection, construction and design, human resource management, financing, and grand opening ceremonies. Some franchisors can offer loans and financial assistance to franchisees.
15. Marketing and Advertising Campaigns Already Established
The franchisor of a successful franchise has invested heavily in marketing and advertising campaigns to keep attracting consumers to your business.
There are two upsides to this:
With an established working formula, you don’t need to start from scratch to figure out outreach strategies.
When the franchisor advertises or applies any marketing strategy, your business will benefit from the publicity.
It isn’t uncommon for franchisors to stipulate that franchisees dedicate some portion of their budget toward marketing and advertising for the brand. Check your contract and discuss the marketing programs’ details and the extent to which you will be involved.
Disadvantages of Franchising
Although franchising offers many potential business advantages, it can still present potential disadvantages. However, you can minimize your risk by being aware of these downfalls.
Explore our list of potential pitfalls below.
1. High Initial Investment
One disadvantage of franchising can be the initial investment. The initial investment in a franchise can be hefty – the more established the franchise, the higher the likely initial cost. However, with some research, you can find a range of franchises to suit your budget.
Take note of the monthly royalty/management ongoing fees payable to the franchisor. Factor this expense when calculating your anticipated profitability.
2. Limitation of Creativity or Autonomy
Another disadvantage of franchising is that joining an established brand means you are limited in your appearance, business model, and mode of operations.
The franchisor enforces restrictions regarding where you can set up the business, and you have to stick to the model’s operational standards.
It is critical to carefully read your franchising agreement and ensure you are okay with all the requirements. For example, your brand may limit the types of products you can stock and even the suppliers you can use.
3. Lack of Privacy
A further disadvantage is that many franchisors require you to share your financial information. While they can use this information to improve your operations, you lose privacy over your business’s health to the franchisor. Still, some franchisors may share their financial information to provide benchmarking opportunities, which helps improve your operations.
Q: What are the risks of buying a franchise?
A: Like any other investment, buying a franchise comes with risks. Typically franchises have an easier time getting financing from banks and other lenders since the franchise is a proven business model.
Q: Can I purchase a franchise if I don’t have any business experience?
A: Yes, many franchisors offer extensive training and support to their franchisees.
Q: Will the franchisor help me find a location for my business?
A: Yes, most franchisors will help you find an appropriate location and provide assistance with site selection.
Q: What is the typical startup cost for a franchise?
A: The startup costs vary depending on your chosen franchise type. Typically, you can expect to pay between £10,000 and £100,000 for start-up costs.
Q: What is the franchise agreement?
A: The franchise agreement is a legal contract between the franchisor and the franchisee. This agreement outlines the terms and conditions of the franchise relationship, royalties and other franchise fees, and more.
Q: How long does it typically take to open a franchise business?
A: It can take anywhere from several weeks to several months to open a franchise business, depending on the franchise you choose.
Q: Is there an initial fee to becoming a franchisee?
A: Yes, most franchisors charge an initial fee for joining their franchise system.
Conclusion: Research into Franchising is Key
Franchising is an excellent option for those who want to be their own boss but don’t want to take on the risks and challenges of starting a business from scratch.
If you’re interested in franchise ownership, do your homework and consult with an experienced franchise solicitor to make sure you’re making the best decision for your unique situation.
It’s clear that being a franchise owner is hard work, but it has some of the best perks in business. Imagine owning your own business without the fear of failing due to a lack of support; this is a reality for franchise owners in the UK.
It’s no wonder the franchise industry is booming. If you can get past the naysayers, you will surely enjoy many of the advantages of franchising. Wherever you are on your franchising journey, we hope you are having fun, working hard, and finding business success.
Apply the same level of diligence to starting your franchise that you would when establishing an independent business. If you are interested in starting your own franchise business, browse Franchise Local today.