Local Franchising Pros and Cons?

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Let’s get one thing straight before we dive right into talking about being a franchisee. There are pros and there are cons. There is no “one size fits all” franchise. You have to do your research into the specific franchise you want to get involved with because there are different circumstances that you might like and others that you won’t. There are many franchises across the nation that are very successful for a reason. Don’t just jump right into any franchise because you know somebody else did it and it worked.

Check out these pros and cons of owning a franchise to see if it might be a good situation for you.

Pros

Systems

This is the main reason to become a franchisee. There are systems that are at your disposal like operating systems, marketing systems, computer systems, and much more. It is a luxury to have systems in place to run your business smoothly. Make sure you are utilizing the systems because that is the majority of what you are paying for.

Training

The training program is a huge help in getting you off to a good start. You might still have some things that take time getting used to but you will still be further ahead of the game than if you started a small business.

Technology

Some franchises have bigger technology budgets than others. A good franchise to invest in will offer high-quality technology to manage your clients, payroll, accounting and other useful systems. To find out this information, contact other franchisees of the particular franchise you are interested in and ask them if they have good technology? They will tell you how they feel about it.

Support

Franchises typically have quality support systems. They tend to be good at taking care of their franchisees whether it is somebody on the other end of the phone or a rep that will come help you out of a jam. Never hesitate to call for support because you are wasting your money if you don’t utilize it.

Real Estate Resources

Franchisors usually understand the importance of real estate. The better location their franchises are in, the more money in royalties they will receive. They will help you with the process of finding the perfect location. Most of the time franchisors have their own full-time real estate departments for this purpose.

Franchisee Network

A very important factor that benefits a franchisee is that they have a whole network of people working towards the same goal with very similar problems to their own. When a franchisee is just starting out and is presented with a problem, reaching out to another franchisee in the network is the best option. They have most likely run into the same problem and can give great advice on how to handle it. This is usually one of the most underrated advantages in becoming a franchisee.

Cons

Franchise Fee

You better be sure you know what you are doing before you pay a franchise fee. The cost can range from about $20,000 to $70,000 but is usually in the range of $25,000 to $35,000. For this amount of money, you need to be fully committed.

Royalties

Franchises have a royalty system that takes away a percentage of your monthly income. The percentages vary between franchisors. Some are as little as 5% while others can reach up to about 12%. It might not sound as much up front but the cost adds up quick. If you make $20,000 a month and your franchisor has a 7% royalty, that’s $1,400 a month. That’s $16,800 a year!

Rules

Rules are rules in the franchising world and there is not much you can do about it. If you think something needs to be changed to fit the needs of your location, most of the time you will not be allowed to make an adjustment. 

Purchasing

It is common for Franchisors to make franchisees buy their products from their headquarters. Because it is mandatory for franchisees to buy their products from the headquarters, the franchisor can make the price whatever they want and will still make sales. It has happened before where the franchisees come together to change the condition and even won. Don’t count on that happening though because that is rare.

Marketing Fund

Franchisees often are paying the franchisor a marketing fee. It is either a percent or two of the monthly sales or a flat fee of $400 to $500 a month. This doesn’t sound like a big deal until you realize your franchisor is doing very little with that money. We have had some success working with local franchise owners to help them better allocate their marketing budget and measure their return on investment.

Selling Your Franchise

When you want out, you can’t just sell your franchise to anybody. The new potential owner needs to be vetted by the franchisor. Even though it doesn’t make a difference to you who owns the business after you, the franchisor is not going to allow somebody who is not capable of running a franchise use their name.