At first, glance, starting a franchise seems like an excellent investment opportunity for small or medium-sized businesses looking to expand their brand. With the economy still recovering from recession and unemployment still high, many business owners are looking for new ways to increase revenue. However, before you opt to buy a franchise, it may be worth your time to consider the pros and cons.
1. Pro: There are low-cost franchises you can buy
The first is that there are low-cost franchises you can buy. For example, some frugal business owners have looked into buying a laundromat franchise or starting an express detailing car wash business. These types of businesses require relatively small upfront investments compared with other franchise opportunities but still provide the chance to grow your brand and expose it to new customers. You can find low-cost franchises online and look for them at your local franchise business development center. Another pro with buying low-cost franchises is that there are several of them you can join. This means that their system has been shown to work at other locations, and you will have the support of a larger organization behind you as well as training programs before you buy your franchise. Look for companies with an established track record, so you know what kind of success they’ve had at other locations.
2. Con: Not all franchises are high-growth opportunities
Despite this potential, not all franchises are high-growth opportunities. There are also low-growth franchises out there that can be a bit of a challenge to get off the ground, let alone make a profit. While a bad franchise investment can mean lower startup costs, it also means that your revenue may not grow many years over year. For example, if you start an express car wash business and only have one location in a small town where traffic is slow, this type of business might not do well long term. However, if you add another location or two and put them in larger cities where the population is high and drivers need to get their cars detailed after work before they pick up their kids from school, then you could see more growth potential with your revenue.
3. Pro: Buying into an existing brand has its benefits
The next benefit of buying into an existing brand is that you can buy into a well-known and trusted name. This means that customers will already know the product or service that they are getting, and it can save you time building your own brand from scratch. For example, if you want to open up a coffee shop, then buying a local bistro franchise could be easier than starting from nothing. Customers already trust the place and there’s no need to worry about building awareness for your new business because it builds on the preexisting awareness of the parent company. Additionally, you will have access to their equipment and supplies, as well as any ongoing training programs they offer. This can make setting up your business a smoother process because the franchise owners already know what works for other locations in maintaining a successful business.
4. Con: You may be limited by the franchise
The downside of a franchise is that you will likely be limited by their rules and procedures. This can be frustrating because when you start a business you want to have the freedom to do things however you see fit. However, if you buy into a franchise you will not have this luxury and will have to abide by their rules in order for them to maintain consistency across all locations. Additionally, franchisors specifically say in their contracts that they control what your store does in terms of signage, hiring standards, and community relations.
5. Pro: You may have access to financing
Financial experts recommend that you should focus on getting your startup costs down when looking for a franchise because most of the time the franchisor will want some sort of royalty from your business. However, if you have high startup costs, it can be hard to pay them once you open up shop because this money is typically tied into inventory and equipment that you need in order to get started. If this is not something that you can afford then consider buying into an existing franchise where they may offer financial assistance or help with financing. This could mean easier access to capital.
While there are definitely downsides to purchasing a franchise most experts agree that the benefits of buying into an existing brand far outweigh these challenges. When you buy into an existing franchise, you are buying into a company that is already successful and can help give you the credibility in your business you might not get if you were starting from scratch.