Disadvantages of buying a franchise
The attraction of purchasing a franchise to start off your business endeavour is clear. A franchise is a proven business concept already in action - while starting a company from scratch always comes with a number of unknowns. However, buying into a franchise is not entirely bulletproof. Franchisees must conduct their business in accordance with the franchisor's procedures and guidelines as outlined in the franchisee agreement. This means that many restrictions and disadvantages can be encountered by the franchisee.
Because franchises already have a prearranged formula and a defined brand, the most significant disadvantage is limited control. This is especially excruciating to a franchisee with a strong entrepreneurial spirit who may wish to modify or make additions to their business. How the company operates, the products you can sell, as well as the suppliers you'll be able to work with has already been established by the franchisor and the franchise agreement.
One of the biggest hurdles in the franchising world is ultimately costs. Investing in a well-known franchise is expensive. If you want this option, you would need to pay a substantial sum of money upfront to buy into the franchise agreement. The franchisee will also be required to pay continuous fees for the franchisor's training, support and other services, as part of the franchise agreement. Eventually, this ensures that the amount of profit you will generate as a franchisee will be limited.
In addition to the upfront funds required to open a franchise, franchisees must pay a large percentage of their earnings to the franchisor, which is an aspect of the franchise business model. These hefty costs come in the form of fees and royalties that are charged on a regular basis during the course of the franchise agreement. They are either a percentage of the business’s total revenue or a fixed amount.
You are probably not the only franchisee to have an agreement with your franchisor. Unfortunately, when it comes to running a company, franchisees from the same franchise may put in less effort and show less concern than you. This misconduct is not exclusive to the franchisees alone. The headquarters could suffer from a franchise scandal as well. What this means is that if the brand's image is damaged, the bad reputation of the franchise can influence everyone involved.
Degree of Support and Security
Not all franchisors will offer the same level of support throughout the course of your franchise. Some franchisors may even pledge to provide you with continued training and support, but will not follow through on their promises. Moreover, the totality of the renewal power is held by franchisors. In other words, franchisors are not required to extend the franchise agreement towards the end of the contract regardless if your business has been following all the guidelines and is in good shape. Due to the nature of licensing, it's at the end of the day, completely up to the franchisor.
Interested in starting a franchise but have no idea about costs? Let's talk numbers.
When starting a franchise, you will receive a model business plan from the franchisor. To save any undue surprises, we will outline the key elements to keep your eyes on.
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