One of the great challenges of a startup is capital. Buying a franchise, however, does offer the potential for bank and trade finance. For someone wanting to start a business, a franchise is potentially bankable.
There are pros and cons to buying a franchise; one key benefit is that franchises have a much lower failure rate than startups – which is why some banks will lend against franchise business assets. As someone new to small business, franchise chains can offer a veritable safety net for you to ensure your survival.
In a sense, the head office of the franchise system is a resource of vital talent that can be utilized. But they are not there to run your business. You will have to compete for their time with all the other franchisees, and from experience, they are always happy to help franchisees who are doing their utmost to help themselves.
Also, good franchise systems end up on most landlords’ preferred tenant’s lists. Particularly when it comes to shopping malls deciding on tenancy mix – they often populate their lists with franchises they prefer most, then everything else is put on the open market. As an independent operator without any track record or connections, you will most likely end up with lease spaces chains do not want.
One of the great advantages of joining a franchise system as a franchisee is that you are given proven templates by which to operate your business. For many starting out in small businesses, the safety net of a franchise can be irresistible. No doubt, the success rate of franchisee businesses compared to independent operators speaks for itself: over 80% survive their first 18 months of operation.
Another advantage over the independent operator is that a good franchise system can bring to the table the collective mind and skills of a number of professions critical to success. These have been honed over many years and proven to work. In other words, a well-structured franchise system is a blueprint for a franchisee’s success.
Some franchisors set a high entry fee to ensure they get older, more experienced business people.
Even though as a franchisee there is someone at the end of a phone to help you with questions and worries, franchising won’t be for you if you need constant management.
But if control is a big issue for you and you love doing things your own way, then a franchise may not be right for you either.
Many business owners choose the franchisee route because it fits in neatly with their lifestyle requirements.
Perhaps you have a family or other commitments and feel you can run your franchise around them. You need to be honest with yourself about family and work priorities and decide how to structure your business so you have a balanced work life.
While the main advantage to buying a franchise is the fact that you have the expertise of the franchising mothership to guide you, the setup costs are often high, there are fees and royalties to be paid, you may have a contractual obligation to follow the systems and procedures laid down by the franchising organization (even if you discover you disagree with these systems) and your business could be affected by the performance of other franchise owners operating under the same brand.
Morris Kaplan is an author, business journalist, and is principal of RainmakerMedia.