Many Mainers are considering going into business for themselves. One of the things that must be decided is whether or not a franchise would be the right choice for these new business owners. Basically, a franchise gives the business owner the licensed right to use a service mark, trademark, or business concept. The business owner acquiring the franchise signs an agreement that spells out how the business is run, ensuring a uniform standard of quality throughout the system.
There is plenty of opportunity for those who choose the franchise route. More than 2,700 franchise businesses exist in the U.S., in just about every conceivable industry, from large, well-known brands to smaller local opportunities. The challenge can be to find one that’s interesting and a good investment.
Here are the main advantages to owning a franchise:
Uniformity. Owning a franchise means a uniform business format as well as instant brand recognition. Usually it also means training and ongoing support from the franchise company.
Lower risk. While starting a business alone can expose you to a high risk of failure, a franchise can offer lower risk. They often include a package that removes a lot of the guesswork associated with starting a business, making them a good choice for less-experienced entrepreneurs.
Proven track record. Franchising typically includes an existing product or service, a proven market method, equipment, inventory and support. This means the business owner isn’t faced with coming up with these things alone.
Network power. Franchisees can gain brand recognition from national advertisement and promotion. In addition, there may be some buying power opportunities when purchasing inventory, materials and supplies through a network, which can help keep prices down.
Start-up cash. There are sometimes financing plans available to those purchasing a franchise.
Certainly, these advantages that can help. But future franchise owners should also consider some disadvantages before making the leap:
Lack of power. Franchisees have to somewhat give up day to day control of their businesses. Some entrepreneurs may have a problem handling the relationship between themselves and the franchise company.
Financial risks. The initial costs associated with a franchise can be high, and generally there are ongoing royalty fees that must be paid, whether or not the franchise has actually made any money. Moreover, the central franchiser may face financial problems or actually go under.
The “caged syndrome.” Franchising agreements usually run for several years, leaving the owner locked into rigid business practices, as well as ongoing fees and operating rules.
Negative exposure. Remember, not all publicity is positive. Problems, such as unethical management practices, hygiene and cleanliness issues, or just weak business practices by one franchisee can affect the whole system.
Going ahead with a franchise can be a challenging and difficult task, but it could also be the perfect arrangement. Deciding to go full ahead with a franchise is a difficult and challenging task. The Federal Trade Commission’s has a booklet on franchising that is helpful, and make sure to discuss the issues with Filler & Associates.