If you want a done-for-you business model, franchising might be the answer you’ve been looking for.
But knowing the full picture of what you could be getting into is pivotal to making the right choice as a new entrepreneur.
Let’s take a closer look at some of the top benefits and challenges of franchising. We’ll also review whether franchising is right for you and how to choose a franchise that aligns with your goals.
Pros of Franchising for New Entrepreneurs
Franchising offers a unique opportunity for business ownership with some built-in advantages.
Here’s what you can expect on the positive side:
Proven Model
Franchising lets you operate under a proven business model with clear operational guidelines, so there’s no need to reinvent the wheel. From marketing to inventory management, you’ll follow a system that’s been tested and perfected.
This helps you avoid the costly trial-and-error that independent businesses often face.
Comprehensive Training and Support
One of the greatest benefits for first-time entrepreneurs is the training and ongoing support franchisors provide.
You get access to initial training on everything from daily operations to hiring employees.
Many franchisors also offer ongoing support, such as marketing assistance and operational advice. You’re never left to figure it all out alone, which can be a huge relief when starting your first business.
Lower Risk
Franchising often carries a lower risk than starting an independent business.
An established brand and strong franchise systems may reduce your chance of failing since franchisors are invested in your success to protect their reputation.
Easier Financing Options
Many franchises offer accessible financing options. (Some even offer internal financing.) This simplifies the lending process and helps you get started more quickly.
Financing options may include help with the initial franchise fee or funding for equipment and inventory.
Brand Recognition
One major perk of franchising is leveraging an established brand with built-in customer trust.
This means you can start attracting customers immediately without struggling to build brand recognition.
For example, opening a restaurant with thousands of locations means customers already know and trust your brand. This head start reduces the time and effort needed to grow your customer base.
Cons of Franchising for New Entrepreneurs
While the benefits of franchising are enticing, there are some challenges you should consider:
Dependence on Franchisor’s Reputation
Your business success is tied to the franchisor’s reputation. Your franchise could suffer if the parent company experiences a scandal or its brand perception declines.
In other words … you’re putting your business in someone else’s decisions. This makes it important to research potential franchise opportunities thoroughly to understand how well each brand is managed.
Logistical Challenges in Certain Industries
Franchising works well in many sectors, but some industries are more complex and require tools to succeed. Take hospitality, for example.
Managing multiple franchise locations in the hotel industry requires efficient systems to handle reservations and inventory across various channels. Thankfully, a distribution management system keeps rates and availability up to date. Running a hotel franchise could become a logistical nightmare without this kind of system.
High Initial Investment
Franchising typically requires a significant upfront investment.
Beyond the initial franchise fee, you’ll need to cover equipment, inventory, and other startup costs. Many franchises also have ongoing royalty fees and advertising fees, which eat into your profits.
For instance, a successful business franchise can cost tens of thousands of dollars just to get started. As part of the franchise agreement, you’ll also regularly pay a percentage of your sales to the franchisor.
Limited Autonomy
When you join a franchise, you’re expected to follow strict operational rules and brand guidelines. This means you’ll have limited creative control and flexibility in running your business.
Branding, marketing materials, and even your corporate video productions must adhere to the franchise’s specific standards. For example, if you’re required to use certain visual elements when shooting commercial videos, you’ll have little room for customization. (Make sure to fully understand your limitations before choosing a franchise option.)
Strict Regulatory Standards in Certain Industries
Certain types of franchises require you to navigate strict regulatory standards.
For example, medical courier services must adhere to regulations to guarantee safe deliveries. If you’re interested in a franchise in a highly regulated industry, you’ll need to invest time and resources into compliance. Otherwise, you could get penalized or shut down.
How to Decide if Franchising Is Right for You
Still trying to figure out if franchising is a good business move?
Here’s a quick checklist to help you decide if franchising fits your goals:
☐ Do you want a business model with established support and guidance?
☐ Can you afford the initial investment and ongoing fees that a franchise requires?
☐ Are you comfortable with following strict operational guidelines?
☐ Do you want the reduced risk that comes with an established brand?
☐ Are you willing to rely on the franchisor’s reputation and decisions?
☐ Are you okay with having limited autonomy over your business?
If you answered yes to these questions, franchising might be the right move for you! Schedule a free consultation to dig into this deeper.
How to Choose the Right Franchise
Once you’ve decided to explore franchising, the next step is choosing the right one. Here are some steps to guide your decision.
1. Research the reputation of potential franchises.
A franchise’s reputation plays a major role in its success. As a prospective franchisee, look for brands with good reviews, a positive history, and high customer engagement.
For example, a franchisor that works on addressing and removing unfair or inaccurate reviews shows they care about their image — and yours. This could be a good indicator that they’ll support your success by maintaining a positive brand reputation.
2. Calculate the franchise fees.
Once you have a list of potential franchises with positive reputations, get clear on all of the fees you’ll have to pay. Review the initial franchise, ongoing royalty, and advertising fees.
Some franchise companies require more upfront costs, while others might offer a more affordable entry point. Make sure you’re fully aware of what each option requires.
3. Review projected profit and loss potential.
Franchise companies typically provide projections for your first few years. Take the time to review these figures carefully.
Look at expected revenue, costs, and how much you’ll pay in royalty fees. Understanding your projected profit and loss can help you gauge how quickly you’ll see a return on your investment. (Do this for each option on your list.)
4. Look at Long-term growth potential.
Some types of franchises offer more room for growth than others. Consider how long-term growth aligns with your goals as a business owner. Are there opportunities to open more franchise locations down the line, or is the market limited?
5. Create a final contender list.
Narrow down your options based on your goals and what you’ve learned. Compare franchises in your chosen industry, considering everything from the initial investment to industry regulations.
Think through factors like the franchise model, reputation, growth potential, and the support you’ll receive. It’s important to choose a franchise that aligns with your personal and financial goals.
But if you’re still not sure …
6. Meet with a franchise consultant.
A franchise consultant can help clear up doubts and give you expert insights about franchise entrepreneurship. They’ll objectively look at your options, flag legal or financial risks, and catch red flags you might miss.
They’ll also consider your personal and financial goals to help you choose the best opportunity.
Conclusion
Franchising offers a great way to jump into business ownership with a solid support system and brand recognition.
But it also comes with its own set of challenges, like high fees and limited autonomy.
Be sure to weigh the pros and cons carefully to choose a franchise that aligns with your goals.
Ready to find the perfect franchise? Let’s save you time and money. Schedule a free consultation to start your journey to financial freedom.
To your success!
FAQs
How much does a franchise cost to start?
Franchise costs vary but typically include an initial franchise fee, equipment, and inventory. The total costs range from thousands of dollars to over a million — depending on the franchise.
Make sure you know the full range of expected costs before jumping into owning a franchise.
What is a franchise disclosure document?
The franchise disclosure document (FDD) outlines key information about the franchise, including fees, obligations, and financial performance. Go through this document with a fine-tooth comb to help you make an informed decision.
Do franchises offer financing options?
Yes, many franchise companies offer financing options to help with the initial investment. That might be through internal financing or partnerships with lenders.
How long does it take to open a franchise?
The timeline varies depending on the franchise. Most take anywhere from a few months to a year to set up.
The process includes finding a location, securing financing, and completing training. You’ll also need to order your inventory, set up your storefront, and hire your employees.
Do I need prior experience to run a franchise?
While helpful, prior experience isn’t always required.
Many franchisors offer training and ongoing support to help you learn the business so you can set yourself up for success.
Can I own multiple franchise locations?
Yes, many franchisees expand by opening additional locations.
What kind of support do franchisors provide?
Most franchisors offer training, marketing, and operational support. This can include help with site selection, inventory management, and ongoing guidance to promote your success.