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The Benefits and Potential Drawbacks of Buying a Franchise

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The attached article is, I think, a fair look at the franchise industry and provides some insight into the benefits and drawbacks of owning a franchised business. However, as with so many articles, there is usually much more to the story. A few comments in addition to what is written:

Benefits of franchise ownership:

  • Limited Risk: Well said by the writer:  A franchise provides the tools for you to be successful and provides a real head start.
  • Brand awareness: This is important in many franchised businesses; Hotels, food and hair care come to mind. But the truth is that many franchises do not create brand awareness. This doesn’t make them bad franchises. They may just operate in a space where brand awareness is less important. There are many successful owners that own commercial cleaning or sign manufacturing businesses that don’t carry well – known brand names. Most of our clients end up purchasing franchises they never heard of before coming to us.
  • Continuing education: This is spot on. Franchises provide ongoing support in the form of efficient operations, new marketing ideas and sharing best practices among all owners.
  • Lower marketing expenditures: Well, yes and no. Most franchise owners pay into a marketing fund that goes into national, regional and sometimes local advertising. But usually, the owner will need to do more advertising locally to supplement what the franchisor provides.

Potential drawbacks of franchise ownership:

  • Contracts: Franchise contracts are onerous at best. Franchise companies have a lot to protect and their contracts reflect this. There is usually limited room for minor changes to the contract..with the emphasis on “ limited”. We always recommend that our clients have a franchise attorney review the contract, before executing it, to make sure it is fair relative to other franchise contracts.
  • Too much structure: True with some franchises, but not others. Certainly food businesses require structure and uniformity of process in order to insure consistent product or service quality. Other franchises, however, do not have the need to operate with rigid operating and marking processes and allow owners some room for creativity. Bottom line is that a person that wants to be creative in developing a business should probably not buy a franchise. Franchisors are primarily looking for builders, drivers and operators that want to build and own a business.
  • Fluctuating earnings: Earning will most likely fluctuate in any business, franchise or not. The key is to find the business (or franchise) that will most likely give you a relatively steady and growing income; and that means building a repeat customer base. Examples that come to mind are retail businesses like hair care and home service businesses like pest control.

The best franchises: The writer here focuses on the top 10 franchises as ranked by Entrepreneur Magazine. And while these are certainly very good franchise businesses, there are so many others not mentioned. The key is to find the franchise that has good management, satisfied franchise owners, room for growth and that best fits your professional and personal goals and objectives.

To read the full article http://www.moneytalksnews.com/2014/06/19/should-you-own-a-franchise/

Mike Hall is the owner of FranNet Carolina, a franchise consulting company that matches clients to business opportunities

 

Mike Hall

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