Buying a franchise seems to be the shortcut to success when opening a new business, due to the goodwill the company may have compared to that of starting afresh. Franchising has opened a lot of opportunities for budding entrepreneurs who are eager to start up their own business; however the franchising process is trickier than it might appear at first glance. In this article, we will be looking at the pitfalls of buying a franchise.
Cost of acquisition and operation
A major downside of buying a franchise is its cost; it had been heard of people paying enormous amounts just to use a franchise name. As a franchisee, you would be expected to pay a fixed amount at the initial stage, before signing the franchise agreement. You will also be required to pay the franchiser for support and training provided and in and in effect, these payments will end up reducing your profit each month. Most of these issues are not felt when you have and run your own business. Here is a video showing you what to expect in regards to cost.
Stringent rules to follow
Franchises come with a lot of guidelines, and you will be expected to follow them all. They may include restrictions on advertisements, restrictions on pricing, guidelines on how to prepare it (for a food product) and lots more.
Most people are very good at following instructions, while some find it difficult being told what to do. So franchising is mostly for those who are very good at following instructions.
You might be restricted to certain suppliers
One way business owners raise their profits is by going for the supplier with the best and cheapest offer, however in a franchise agreement, these can be restricted as you would have to buy from the franchise established supply network. This whole setup will definitely have a dig at the franchisee’s profit and it is a glaring disadvantage.
Limited expansion potential
Being a franchise also restricts your business growth potential, as you would need the franchiser’s permission (obviously pay more) to carry out any expansion, you can’t open more branches as it is when you own your own business. So a franchise doesn’t so much support expansions.
Effect from others in the franchise
A franchise associates your business to the big brands, so any good or bad thing associated to that brand, will also affect you. For instance, if the franchiser or any other franchisees does something to destroy the reputation of the brand, then the whole drama would also affect you. It could lead to a drop in customers and profit. So a franchise exposes your business to external influences which you cannot control.
Are you planning on buying a franchise? Then these are some of the downsides you need to consider before making that deal.