Franchise Business or My Own?

Should you start a business of your own or buy a franchised brand? There are many pro's and con's to having a franchised business versus a privately owned one, but there are many things to look at beyond the initial brochures provided from the franchisor.

Before you even think about buying a franchised business you need to ask yourself, if you are qualified enough to be approved with the brand. All franchisors look over your financials, including your debts. You will want to make sure you have the criteria that meets the specific franchisors requirements. Next, you will need to apply to become a franchisee. This process may take awhile depending on the company you are dealing with, as they have to review all of your documents and draw up paperwork. If you are approved, you will be asked to fulfill many obligations such as paying the franchise fee. Expenses start adding up, even before you bring in your first dollar from your business.

So the question is: Should you franchise or not? The pro's of being apart of a franchised business are just about infinite when it comes to operations, but there are many con's as well. Some of the great things a franchised business can provide for its franchisees is that: You will be apart of an established brand, you will have the backup of the franchisor, you will have a general marketing plan, you will probably get the best priced inventory from your suppliers as franchisors negotiate pricing between suppliers and franchisees, you have an established product line and you will definitely get adequate training to run your business. Now these are more of the general aspects that buying into a franchise can provide, but there are more.

As far as being apart of an established brand goes, you will be receiving free publicity before you start your business when you put that "COMING SOON" sign up. When people see brands they like, they look out for the opening of the business. When you are starting a private business, people will probably not know your brand, causing you to have to create a brand image.

Having the backup of a franchisor is great when it comes to having legal disclosures and such because franchises have thought out what things need to be made public with the operations of your business. Privately running a business would require you to have to make your own legal decisions with the assistance of an attorney, where costs can add up.

Marketing is a big part of any franchise. Every franchise has a marketing plan for their locations in play. Being a new owner in the franchise, you will already be apart of an on going marketing network. There are going to be promotions that are ran franchise-wide which you will be notified by the franchise and they will come up with the ideas and concepts of who and what to market. This takes a big burden off of you as far as marketing goes on the macro scale. You will still need to market your business within your community.

Getting the best price from suppliers can really add up to a bigger bottom line and less inventory costs. Franchises generally negotiate pricing structures with suppliers because they are buying as a corporation with multiple units. They are often given bigger discounts than individual locations of the same type of business can get.

A franchise would not exist unless they have already developed a line of products. This is one of the main parts of running a successful business. Your line of products is what your customers come to your business for. Having a successful line of products is of extreme importance otherwise you could be going out of business sooner than later. Franchises often do market surveys of new and existing products to make sure that there is a client base for it. If you started your own business, you would probably have to come up with your own product line.

A necessary part of becoming a franchisee is successfully completing a training course. Training in the industry you are going into is a great service that is provided by franchisors. However, you are paying for the training, but it does make a difference when you are trained than when you are not. Franchisors usually train people on how to manage the business, not just in the retail aspect, but after hours management as well, such as paperwork and more. Training is just a tool, you will learn more after you actually open your doors!

The Con's to a Franchise Business:

The pro's have been stated, now I will go over the con's of being a part of a franchise.

-There are a few general categories of drawbacks with being a franchisee: Royalties, Franchise Policies, and Termination of Contract with Franchisee.

With any franchise, there comes royalties. Royalties are fees paid to the franchisor by the franchisee, for using the brand name as well as additional marketing costs. There is usually a certain fixed dollar amount or a certain percent of sales that is required to be submitted to the franchisor as royalty fees.

Franchise policies are also regulations between the franchisor and franchisee that the franchisee has to follow. Companies usually enforce their regulations and will expect the franchisee to do just as stated. This gives very little lee-way for the franchisee to make his/her own decisions with the business from the operational standpoint. When running a private business you will find more options to do what you want with your ideas, of course within the guidelines of the law.

Leading to the next point, Termination of Contract with Franchisee. Franchisors have a certain amount of leverage where they can terminate the contract with the franchisor if they feel there has been a violation in the terms. This would go through a legal battle with the company, but there are chances of losing the brand name of the franchise and additional expenses that come with a loss. This generally doesn't happen, but there are chances with being involved with a franchise.