For someone with little or no business experience, buying a franchise definitely sounds like best way to enter the market. The promise of not having to spend time trying to figure out the best business model is enough to make you sign the dotted lines. However, settle for a franchise, here are 4 important things to consider:
The cost of a franchise begins with a franchise fee
Though one advantage a franchise business has over a non-franchise business is that the ground work has been done, it doesn’t rule out the fact that the cost of owning a franchise doesn’t end with the non-refundable franchise fee.
Other than this, you will need to deal with the cost of having the necessary inventory and equipment, making regular contributions to the franchisor’s advertising fund, and of course pay royalty based on a percentage of your monthly sales.
Rigid business model and framework
From employee management to operational procedures, technology, accounting, marketing, and even customer acquisition, the business model provided by the franchisors practically covers all the base for franchisees to replicate their success. However, in a bid to ensure that every franchisee operate according to the established standard, franchisors end up being too rigid about their rules.
They practically rule out the fact that there might be changes in pre-determined factors that might necessitate a modification of their existing business model. What’s worse, your innovative ideas are not readily welcome and should you go independent, the non-competitive clause in the franchise agreement prevents you from starting off for quite some number of years.
With their trademark, trade secret, brand reputation, and their customer base at risk every time they sign on a new franchisee, franchisors go an extra mile to protect their interests. Though their reasons for doing is quite understandable, it doesn’t rule out the fact that the rights of franchisees are not fully protected.
In fact, the fate of franchisees is dependent on the rules set up by the franchisors which sometimes include waiving your rights under federal laws. The significance of this shows up when another franchisee chooses to have their business next to yours, the franchisor is not appropriating the advertising fund properly, or the franchisor insist you patronize a particular supplier for the sake of quality control (even when you can get the same value at a lower price). The worst of all is definitely the be the unfair termination of your franchise.
So, before you settle for a franchise option, ensure you do a background sweep on the franchisor’s commitment to the growth of existing franchisees before and after the launch of their franchise.