Disadvantages to a Franchise

admin ♦ August 15, 2010 ♦ 1 Comment

The notion seems tempting to many. For a large sum, a person gets access to the brand and products of a certain company. That parent company provides logistical support, inadvertently gives marketing and advertising help and generally becomes a ready-made business for the person. In simple terms, franchising seems like a very good way to start a business and have it succeed without needing to invest a lot of time and resources into it. The statistics even support the idea – only 20% of new franchisees fail within the first year, while 80% of independently-started businesses do. However, the deal does have a few caveats that people should consider before signing on the dotted line.

The first is that things are done as the parent company likes things to be done. It is very much a “their way or the highway” scenario. Since the franchisee wants to take up the brand and product lineup, they should also be willing to operate the business in a manner that is similar to how the parent company did. This does increase the chances of the franchise being as successful as those controlled by the core, but it also deprives the franchisee of any authority to make changes to adapt the business to specific circumstances. Things like pricing and product changes are beyond their ability to alter.

One must also consider the cost of franchising agreements. The more popular or established a franchise is, the more expensive it can be to secure the agreement. Getting the financing needed to secure these contracts can be cutthroat, particularly if the person doesn’t have enough to get the agreement himself. The amount can be a massive investment – one that sits on top of the daily cost of keeping the business going. Not everyone can afford one of the best franchises, with even less people able to keep it going after making the massive payment.

Finally, while some companies do offer support and advice while being controlling, some are just plain controlling. Not every parent company will bother to help its franchisees develop their franchises into something profitable. In fact, aside from those companies that have a lot to lose in the event of such a failure, it can be assumed many companies try to get away with minimal advice. There are also those that offer no help at all, other than attempting to control as much of the policies and operations as possible.