Suppose you’re looking into buying a franchise, such as a local ice cream shop. While the store only offers ice cream sandwiches, there is a high demand for the product throughout the year. In addition, the shop itself has low rental costs and low labor costs. On the other hand, it would require $30,000 to buy the franchise and pay for the setup costs, such as equipment and renovation costs.
Should you still buy the franchise?
While there is no clear cut answer as to whether or not you should buy a franchise, here are some pros and cons that you should consider to help you make the right decision:
- Joining an established company has many marketing perks: brand recognition, nationwide advertising, and well known logos and slogans. This may save you money in graphic designer costs and copyright fees.
- When you open shop, you’ll already have a customer base. The public knows the product and trusts the company. More often than not, you’ll get a faster and higher ROI than independent owners.
- Companies offer a huge support system for their franchises. From call centers to employee training sessions, you won’t be running your business alone and can benefit from the experience and knowledge of others in the same situation.
- The expense. The initial costs average to about $250,000, according to Randall S. Hansen of Quintessential Careers.
- Franchise owners are required to forfeit a set percentage of monthly profits to the company in the form of royalties. You many also have to pay an additional amount per month for marketing fees (about 1-2% of your gross sales).
- When you join a franchise, you’ll lack autonomy. For creative types, it might be stifling to abide by the uniformity of a chain which could include required uniforms, menu items, marketing procedures, and store front décor. Goldberg warns, “franchisees don’t ‘own’ their franchise unit: they are awarded a license to use the franchisor’s brand name, operating system, equipment, uniforms, etc. that have been fine-tuned and perfected over many years. Yes, you control your franchise unit in terms of the culture and values you set, and who you hire and fire, but you must follow the franchisor’s operating system.”
If you’re still unsure whether to establish your own company or buy into a franchise, ask yourself: “Do I want creative freedom or do I prefer the structure of following set guidelines?” For many, their final answer boils down to the vision they have for their business. If you need additional help, consult a highly qualified franchise lawyer to help you weigh out the pros and cons and offer you advice on this decision.