The number of people opting to go into business for themselves typically has a correlative relationship with the health and stability of our economy. When the economy is up, so is the number of new businesses being started. What type and “brand” of business is the first decision of many one will make in starting a new business venture. For many new businesses, purchasing a franchise rather than developing a new brand is an attractive option.
Potential Pros Purchasing a Franchise
- Brand Recognition/Loyalty: Brand recognition and established customer loyalty are key benefits that come along with the more popular and established franchises. Having a customer base that is already familiar with and possibly even loyal to the franchise brand will result in much lower customer acquisition and retention costs.
- Operational Support: Franchisors are able to provide support and operational assistance to its franchisees, a benefit that most solo new business owners do not have. This support can prove to be invaluable as the franchisor may have helped hundreds or even thousands of franchisees work through some of the same issues faced by new business owners.
- Turnkey Business: Most established and successful franchises have develop a proven system for operating the business, market share and maximizing profits for the franchisee. Franchisors have a very vested interest in the success and profitability of each franchisee.
- Lower Operational Costs: The collective purchasing power of a larger franchisor typically results in lower goods, equipment and inventory costs for the franchisee, helping to make a healthier bottom line.
Potential Cons Purchasing a Franchise
- Higher Initial Costs: The initial costs of purchasing a franchise is often higher than the cost of starting a similar independent business. New franchisees are required to purchase specific furnishings, signage, point of sale equipment, inventory, employee uniforms, and even complete a build out of the location all pursuant to the franchisor’s requirements.
- More Restrictions: Franchisees are required to conform to uniform operating procedures and to provide its financial and sales information to franchisor. The larger and more established the franchise, the less freedom of operation and a franchisee will have.
- Royalty Payments: Franchisees are required to make royalty payments to franchisor in consideration for the support and marketing service they receive; this is the very essence of a franchise. As with the restrictions discussed above, the larger and more established the franchise, the higher the franchise fees often are.
Eric R. Thiergood, Sr.