IS A FRANCHISE BUSINESS FOR ME?
Posted by brandstad in Oct, 2017
WHAT IS A FRANCHISE BUSINESS
A franchise business is a business where the owner (franchisor) sells the rights to trade using their structure & business process or system i.e logo, name, and business model to an independent third party operator (franchisee).
ADVANTAGES AND DISADVANTAGES OF BUYING AND RUNNING A FRANCHISE
Franchise businesses tend to be a popular option for people who have some money saved up or received a lumpsum payout on retirement or redundancy. Particularly if you have always thought about starting up your own business but have been unsure how to build a business from scratch.
As you are effectively buying a business already established brand it makes it easier for you to get sales from day one.
Before investing in a franchise it is important to understand the pros and cons of such an investment. Also because it is usually a large amount of money to invest up front and there tend to be tie in clauses it is best to seek legal advice to ensure you understand fully what you are committing to and are getting the best deal for your circumstances
Some of the most common Pros and cons of buying a franchise are listed below. The key thing here is to do your research so that what you are buying into will match your circumstances.
PROS
- Buying a ready established brand and structure – this means that the business is packaged so that you can start selling from day one. No need to work hard to build the brand and establish demand for the product or service before you can sell. You will most likely start making profits quicker than someone who starts a business from scratch.
- There will be support and training from the franchisor to help you along your build building. If you are weak in selling, marketing or back office finance and admin functions this is particularly invaluable for your success
- Staff recruitment and retention is easier. If you buy a known franchise such as McDonalds or Subway you will find that the name attracts good quality people who want to work for the company. This makes it a bit easier to select rather than a brand new business with no track record.
CONS
- Lack of control. There is not as much control over your business as you think. For instance you usually have to buy your stock from the franchisor however, this may be overpriced compared to the local provision thus pushing up your costs.
- High start up costs. The initial start up costs can be relatively high and difficult to recoup in the timeframe you set your self or if at all.
- Royalties – this is a permanent cost in your business model. You will always have to pay royalties to the franchisor for as long as you are in business. This will definitely have an impact on your profitability potential
In conclusion, franchises do benefit some individuals particularly those with some money to invest, and happy to work within guidelines set by the franchisor rather than make their own operating rules and processes. Always seek professional legal and financial advice before investing in a franchise.
If you would like further information on any of the points in this blog please contact us on 07906343050.
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