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Advantages and Disadvantages of Buying a Franchise

March 06, 2024
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Learn the Most Important Advantages and Disadvantages of Buying a Franchise
Americans like to dream big. Many of those dreams involve owning our own business and being in charge of our own futures. It's an admirable dream, but according to a CNN Money article, entrepreneurship is at its lowest point in 40 years. Since the Great Recession, which began in 2007 and peaked in 2010, Americans backed away from taking the chances necessary to pursue their dreams. Fear, uncertainty, and the reality of the economy all played major roles in the decline of new start-ups, but more than a decade after the Great Recession, the American economy is slowly recovering and Americans are starting to dream again. One of the long-standing vehicles for those dreams has always been the franchise model. Owning a franchise may be your path to success, but before you jump into the arena, take a look at some of the advantages and disadvantages of buying a franchise.

What is a Franchise Business?

A franchise business is when one business or corporation allows an outside investor the right to use its name, trademarks, and operating procedures in exchange for fees. This is called licensing. The "franchisor" is the entity granting licensing rights and the "franchisee" is the entity acquiring those rights. There are over 3000 franchise opportunities in the United States alone, covering a wide variety of business industries. With so many franchise opportunities available, finding an exciting and profitable business venture should be easy for someone with a strong entrepreneurial spirit and the financial resources to pull it off.

A Franchise Business Can Be the Perfect Starting Point for an Investor

Advantages of Buying a Franchise

There are advantages and disadvantages of buying a franchise. Even if you have the resources to buy a franchise and the business experience to operate one successfully, it's important to consider all the advantages and disadvantages before you jump into the first opportunity you find. When it comes to buying a franchise, a little research can save you a lot of headache and can increase your chance for success.

Keep in mind that some of the advantages of buying a franchise might be a disadvantage as well. In many cases, it depends on your perspective. Established features, for instance, can be advantageous to you, but because those established procedures allow little room for experimenting, it may also be looked at as a disadvantage. This is sometimes a matter of perspective. What one person feels is an advantage, another may see as a disadvantage.

Advantages of buying a franchise include:
  • Recognized and established branding
  • Established procedures
  • Start-up resources and help
  • Training
  • Easier financing

Investing in a Franchise with Great Name Recognition Gives you a Head Start in the Business World
Recognized and established branding is one of the biggest advantages of buying a franchise. It can be tough to start a new business with a name that isn't widely recognized. Buying a franchise that already has great name recognition gives you a head start in the business world. When you buy a franchise from an established company, you pay a fee to use that company's name and reputation. This is why it's so important to choose a company you trust when you make the decision to open a franchise. Their name becomes your identity.

If you buy a franchise, you are buying into a business that has established procedures for everything. Having established procedures in place means you can get straight to operating your business. You can avoid the trial and error associated with setting up and testing the operational procedures of the business. This may seem like a small concern, but the time and cost of setting up business procedures can be monumental for a start-up business with no franchise backing.

As a franchise owner, you have an established brand name at your disposal. You can take advantage of this by doing some digital marketing on your own, using the power of the brand. According to a Forbes article, The Biggest Trends in Franchising, contributed by Kevin Harrington (As Seen On TV Pioneer and Shark Tank shark), the Internet is an important part of franchise visibility and success. Not only is it fertile ground for finding and growing your customer base, but many franchisors use the Internet to deliver critical information to their franchise owners.

"Digital marketing is such an integral part of making a franchise successful, and without some expertise, it's easy to get lost in the crowd."

Jeff Gill, Co-Founder of Sir Grout

Jeff Gill, co-founder of Sir Grout, says, "Digital marketing is such an integral part of making a franchise successful, and without some expertise, it's easy to get lost in the crowd. Sir Grout takes advantage of WebFindYou, the global leaders in all-in-one digital marketing technology, to help us establish an optimal presence in the online business community. The unique approach of WebFindYou allows us to maximize our online visibiliy and presence, and more effectively grow our business."

Another advantage of buying a franchise are the resources you have available from the start. When you buy a franchise, the company you are franchising with can provide you with specific, ongoing help and resources. Again, this can be a great time saver and a way to operate without spending additional money.

Advertising and promotional campaigns are also a big part of the resources and help available when you buy a franchise. Advertising your business gets expensive. The cost of advertising varies depending on the medium. According to an article in Entrepreneur, a 30-second TV spot can range from $90 to $2,500 dollars, depending on the time slot. Those prices go up dramatically for prime time and special events. When you own a franchise, the parent company often foots the bill for national advertising campaigns that benefit you.

Training is another advantage of franchise ownership. The franchisor typically provides all the training you need to get started operating your new franchise business, so even if you are new to owning a business, the provided training can be an effective way to get you started. Most franchise operations offer ongoing training as well, so you are always up to date with the most current operating procedures and policies.

Financing a franchise business with a bank or investors may be easier as well. When you are opening a franchise with an established brand, financial institutions or investors might be more inclined to take on the risk of financing your business venture than they would if you were starting a new business with no established customer base. Opening a franchise with an established brand means you already have a business plan in place and a foothold in the market, which makes your new business less risky for a loan or investment.
Disadvantages of Buying a FranchiseDisadvantages of Buying a Franchise
While there are certainly excellent advantages that come with buying a franchise, there are disadvantages as well. Some disadvantages of buying a franchise include:
  • Profit sharing
  • Strict adherence to operating procedures
  • Franchise agreement
  • Negative association

Profit sharing is ongoing with many franchise operations. According to an Entrepreneur article entitled How Franchisors Squeeze Money from Their Franchisees, a franchisor typically takes between 3% to 10% of gross profit. That's in addition to the fees you pay to buy the franchise, and it is an expense that doesn't go away for the length of your franchise agreement.

When you own a franchise, you are required by the franchisor to adhere to the established guidelines and policies of the franchisee. This can be stifling for an entrepreneur who wants to try new things or look for innovations. If you want to do things your own way, buying a franchise may not be the best option for you.

When you buy a franchise, you sign a franchise agreement that dictates the terms of franchise ownership. The agreement covers everything from how you will run the business to how much of the profit the franchisor takes. While you are bound by the terms of a franchise agreement, the franchisor is not required to renew the agreement at the end of the agreement term. That means you could lose the support of the franchisor and the right to use its trademarks.

Negative association is another disadvantage of owning a franchise. For example, if you own a McDonald's franchise, you are linked to the name and subject to the reputation of other McDonald's stores. If, for instance, a customer visits a McDonald's and receives poor service, chances are good they will associate that poor service to the McDonald's name. Since you have a McDonald's franchise, your store could suffer guilt by association.

Owning a Franchise May be Your Path to Success

How to Choose the Best Franchise for You

If after examining the advantages and disadvantages of buying a franchise you decide franchise ownership is right for you, it's time to decide the type of franchise you want to purchase. There are a couple of ways to make that decision. Some entrepreneurs buy into a franchise that falls into a category of work they are familiar with or that they enjoy. While it's always good to be involved in something you enjoy doing, owning a franchise that isn't successful, regardless of how much you enjoy it, isn't good business. Always look for something you enjoy doing but examine its potential for profit.

What are the hottest trending franchise opportunities? This is an ever-changing landscape. Fast food franchises are staples, but with a trend toward healthy living, you may want to consider a franchise that adheres to a healthier menu. Personal health and fitness franchise opportunities are successful and trending, as are franchise opportunities that involve a "green" lifestyle. The trends toward better personal health and a cleaner environment make any franchise opportunity in these industries contenders for success.

An Entrepreneur article, Our Top 10 Franchise Categories for 2018, pets, pest control, staffing and recruiting services, and franchises related to entertainment and recreation are also trending. While these are all good ideas, and certainly worth looking into when you want to buy a franchise, they certainly don't represent the vast sea of franchise opportunities that turn a healthy profit. It's a good idea to use some of these suggestions as a starting point and do a bit of research in the area where you want to buy a franchise. If you're set on a fast food franchise, for instance, consider the location of the franchise and the competition you will face. This can be especially important in the fast food industry, where a particular location may not be able to sustain another fast food establishment.

Things to consider when looking for franchise opportunities:
  • Popular or trending categories
  • Start-up investment
  • Brand integrity

Looking for popular or trending categories is an effective way to choose a franchise. Trends that show a steady increase in popularity and exhibit signs of continued growth are the best franchise opportunities to consider. When you look for the best franchise opportunity, picking one that you can count on for the long term is the smart thing to do.

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Start-up cost is another consideration. Whatever business franchise you choose to invest in, you can always do specific research regarding the cost of the franchise versus return. This will help ensure you get the most bang for your buck.

Brand integrity is extremely important. When you purchase a franchise, you want your business to be backed by a name the public trusts. The more well known and trusted a brand is, the more likely you are to reap the rewards of a successful business.

Looking for Trending Categories is an Effective Way to Choose a Franchise
Should You Buy a Franchise or Not?
Only you can decide whether or not buying a franchise is right for you. Now that you are aware of some of the advantages and disadvantages of buying a franchise, take what you've discovered and use it to make an informed decision about buying a franchise. Do the advantages outweigh the disadvantages? If you can find a balance, you can begin your search for a franchise opportunity at All USA Franchises to find the franchise that suits your needs.

Owning a franchise can be your ticket to a successful and financially rewarding life. If you arm yourself with a bit of knowledge, if you're willing to put in the work, and if you've got some good old fashioned entrepreneurial spirit, you have what it takes to be a successful franchise owner.

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