Disadvantages of having a franchise

The idea of ​​owning a nationally recognized business can be quite appealing for a number of reasons: You won’t have to spend many months getting your brand out there, you have a corporation behind you, and you’ll have assistance with all of that. you do. While owning a franchise can be a means of operating your own business, consider the pros and cons before you invest.

cost

Starting a franchise business can be expensive. The average cost of franchise fees to become a franchisor is approximately $50,000. There’s also the cost of equipment, construction, overhead, and marketing supplies. You may also need to pay annual royalties or franchise fees to the company.

restrictions

Owning a franchise often means following the franchisor’s guidelines. Restrictions placed on you and your business may include hours of operation, where and how you advertise, the number of employees, how you handle complaints, what products you can offer, and from which vendors you can order.

Limited growth potential

When you buy a franchise, you may find that your capacity for future growth is limited. Franchise companies often restrict areas of territory to prevent similar stores from competing with each other for customers. If you buy a franchise, be prepared to know that you probably won’t be allowed to open another office or store within geographic distance of your original location. Check with the franchisor before your first purchase to understand any territorial restrictions.

association problems

A franchise with a bad reputation can become a liability if you purchase one of their franchises. Regardless of how well you present your franchise, the overall reputation of the franchise you represent may outweigh your good intentions.

Advertising costs and restrictions

In many cases, a franchise will require specific ad styles and placements and pass the cost on to you. Sometimes the corporation actually places the ads and then sends you a bill. At other times, you are prohibited from advertising in local publications, which may prevent you from reaching certain potential customers.

signaling

Franchisors generally require certain signage to be placed in and around their business. This can become challenging from a cost standpoint. The city where your franchise is located will need to approve any signage you plan to use on the side of your building or on your property. This can be a lengthy process where you will have to appear and plead your case if the franchising company requires signage that the city normally prohibits. Check with your city planning department to determine any restrictions that could affect your franchise before investing in the franchise.