Discussing all the Pros and Cons of Buying a Franchise Business
The idea of starting a business right from scratch may sound overwhelming. After all the incorporation of a company comes with a lot of requirement.
However, what if you go the route of buying a franchise business? You may also be asking about how how can go about for owning one. Franchising is essentially a form of marketing and distribution of services or products relating to the owner (franchisor) through affiliated dealers (franchisees).
Besides riding on a well-known brand name, buying a franchise business offers several other advantages that may not be available for an entrepreneur starting a business.
Let’s look at some of the pros and cons of buying a franchise business.
Pros
Reduction of Risk
When you compare starting a new business and going into franchising, a franchise has less risks. This is because; franchises have tremendous support and backing from the establishment. The majority of the corporations work with business models that have already been tested in various markets across the region, and have proven success. And with that history of proven success, securing a franchise business loan is more attainable than securing a loan for a startup.
Brand Recognition & Loyal Customer Base
Any business owner can agree that getting your first customers is always the most challenging part. It is the one reason why so many people are going into buying a franchise business. When you go the franchise route, you bypass a number of works that go into marketing and branding. Investing in a franchise grants you access to reputable brand, loyal customer base and prospective employee pool. In return, you enjoy an accelerated path to revenue streams within no time.
Combined Buying Power
A better way of benefiting from deep-rooted relationships with suppliers is through buying a franchise business. Investing in one gives you a chance to receive materials at a lesser cost because of the franchisor’s collective combined buying power.
Extensive Franchisor Support
The one thing you’re bound to benefit from as a franchisee is the franchisor’s support right from the beginning. You’ll get pre-opening assistance with operations such as ground-opening program, construction, design, among others. The help does not stop there; other franchises offer loans and other forms of financial assistance.
Cons
Initial Investment Can Be High
Now, the initial investment cost for a franchise can be hefty, particular for a big-brand franchise. This will depend on which franchise you choose to invest in; however, there are many affordable franchises. Get to understand the monthly royalty fees that some franchisors charge. The loyalty fee is usually 4-6% of the gross sales revenue, reducing your profit potential. But don’t get me wrong, because not all franchises charge the monthly royalty fee.
Limited Creativity
Investing in a franchise means that you’ll work with a predetermined brand, limiting you to explore and be creative. If you’re buying a franchise business, know that there are restrictions on where and how to operate.
Sharing of Financial Information with Corporate
The franchisor regularly gathers financial information from their franchisees to upgrade their business model and audit royaltyf payments. Consequently, this will deprive the franchisees of a little privacy with regards to their finances. Highly performing franchise share their financial information with their franchisees. The franchisees can then benchmark their performance with the rest of the franchise system.
Conclusion
Every investment is worth trying, but before you do so, you must carry out an assessment. An entrepreneur looking into buying a franchise business must understand how the process goes. Weighing the pros and cons of franchising is the path to the right direction. However, if you’re an entrepreneur and need any assistance into franchise business set up, 3E Accounting India is available. You’ll get other business solutions services from our experienced professionals. You can contact us for more information.
3E Accounting India
3E Accounting India is a corporate service provider and accounting firm assisting clients with company formation and incorporation. We offer company secretary and business-related services in India.
