The 7 Disadvantages of Franchising

Buying a franchise can be a good investment. You could be very profitable. But there are a few disadvantages of owning a franchise. Do you know what they are?

Creating Your Own Success as a Franchisee

I believe that anyone considering life as a franchisee must be fully aware of the disadvantages of franchising before they take the plunge. It’s too big an investment to leave anything to chance. 

Being fully armed with all you need to know will help you assess your aptitude as a franchisee, and to ensure you don’t suffer cold feet as a first-time franchisee. You’ll make a better investment and be more profitable.

If you take up my offer of a free franchise consultation, you’ll find we discuss the pros and cons of franchising in some detail. Ahead of a consultation, this article introduces the potential downside of owning a franchise – and the understanding you need to make an informed business decision and a more profitable investment.

Risk Reduction Is Not a Free Lunch

One of the big attractions of buying a franchise is that the business you are about to own and manage is tried and tested. The model has been proven to work. If you follow the same model, then the downside risks should be massively reduced.

(I’m not saying that some franchises don’t fail. Like all businesses, some do. Want to know why? Then read my article detailing the one reason that franchises fail.)

For the huge reduction in downside risk when compared to starting and running a completely new business, you must be prepared for a few disadvantages.

  1. There’s (usually) a high initial investment

The cost of buying a franchise may be higher than the cost of setting up a business from scratch. As well as investing in the building, equipment, and stock you need to start, you’ll also have an initial charge to pay to the franchisor.

However, if you accept these fees and set up charges as part of the costs of entering into business, you’ll allow for them in your business plan. There won’t be any nasty surprises to your cashflow, and your earnings potential will be realistic.

  1. You can’t innovate

Don’t think that you will be able to do things exactly how you please. If you wish to be creative in your business, your creative side will be hampered by the need to stick to the franchise model. You will need to follow the ‘rules’ and guidelines laid out by the franchisor. There are no exceptions. 

What you sell, how you sell, and where you buy your materials will all be determined by the franchisor. You’ll need to use the franchisor’s accounting system. Is this really a bad thing? You’re buying a franchise because it is a proven business model. Why would you want to do your own thing?

  1. Lower profits – or are they?

As the owner of a standalone business, the profits you make are all yours to keep. As a franchisee, you will pay commissions (or royalties) and fees to the franchisor. That’s a big downside, right? Although the ongoing costs may not be as high as you think they could be, and, of course, you benefit from the franchisor’s buying power in the market. Also, you’ll get ongoing support and training that you wouldn’t get as an ordinary business owner.

  1. Your business affairs aren’t private

Your business ‘secrets’ will be shared with the franchisor and other franchisees. If you don’t want to share how well you are doing, then franchise life isn’t for you. Of course, on the flip side of the coin is that you get to learn what the most successful owners in the franchise are doing – and that could help you do even better. (Hey, sharing is caring.)

  1. There’s no guarantee of success

Though you are buying into a successful model, franchise success does not come with a 100%, cast-iron guarantee. Much depends on your location and the consumer habits of people living and visiting that location. It also depends upon you – your knowhow, management skills, resilience, and your motivation.

  1. Potential competition

Good things get copied. You may set up in a great location and bring in high volumes of customers and sales. If others copy you, it is likely to affect your continuing success – and you may become a victim of your own success.

  1. A franchise can be difficult to exit

If you want to sell your franchise, you will be bound by the terms in the Franchise Disclosure Document. This may include offering the franchisor first right of refusal, or paying a commission upon the sale. You certainly won’t be able to sell without the franchisor’s permission.

Therefore, we recommend that before you buy a franchise you consider how to say goodbye to it. Knowing your exit strategy as a franchisee is as important as knowing your exit strategy as an entrepreneur and owner of a standalone business.

Understand the Disadvantages of Franchising to Be Successful

When you understand the disadvantages of franchising, you are more likely to buy a business that is right for you. Your business plan will be more effective, and you’ll have the right mindset to benefit from the advantages of life as a franchisee, including:

  • Investing into a proven business model

  • Familiarity of brand

  • Support and training from the franchisor

  • Buying power that should reduce your input costs

To learn more and get the help you need to buy the best franchise business for you, book a free franchise consultation today.

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