What’s a franchise?
Franchise is acquiring the right to use another party’s proprietary knowledge, processes, and trademarks to sell a product or provide a service. Franchising is a good way for franchisors to expand and can be a cheaper way for franchisees to enter the market.
Some of the largest and well-known franchisors in the world are McDonald’s, Taco Bell, Subway & KFC.
Why buying a franchise might be good?
Buying a franchise gives you access to proven concepts, strategies or products which have already been market tested. Some franchisors even provide you with a guaranteed level of income.
Most franchisors will help you with setup & training. They will also have manuals or guidelines on the normal operations of the business.
It also gives you the ability to use the buying power of the franchisor to purchase goods at a lower cost compared to similar independent businesses, giving you a competitive advantage.
You benefit from brand recognition from day one and in most cases advertising and marketing will be taken care of by the franchisor.
Risks & Shortcomings of buying a franchise
The franchise agreement will dictate how you run your franchise. As you are using the franchisors brand, the franchisor controls how it wants its brand to be perceived by outsiders.
You might have to follow the franchisors rules on how to present and run your franchise.
There might also be restrictions on how you operate, the products you are allowed to sell and suppliers you use.
As you are linked to one brand, bad performance by other franchisees or diminishing brand name will affect your franchise’s reputation and profitability as well
There might be additional costs of keeping your premises up to standards
Buying a franchise is like buying any other business, you have to do your due diligence. Even though the franchise might have a proven market, there is no guarantee of success and what the future holds. Good strategy, management and decision making is critical to the success and survival of any business.
Franchises are restrictive in the way they operate and products they sell, hence it might not suit everyone. Creative people or someone who wants to create their own unique brand or product will not suit a franchise.
Buying a franchise might be good for someone who does not have much experience as the franchisor will most likely provide training and guidance around the running of the business. All the tips and tricks of trade are provided to a franchisee hence little work is required other than executing these.
Investing into a franchise might also be a good idea as it could give guaranteed returns with little or no effort in penetrating the market.
Nonetheless its always a good idea to discuss your plans with a business advisor and lawyer first before signing a franchise agreement.