In some cases, buying a franchise can be a great alternative to starting your own business, particularly if you have limited experience running a business. The franchisor provides you with a developed way of doing business, trains you to run the business and provides ongoing guidance and assistance with operations, management and marketing matters.
However, buying a franchise does not guarantee success. You will still need to work hard, apply good management skills and serve your customers well.
Each franchise is different. It is imperative that you understand all the obligations you are committed to under the terms of your franchise agreement.
Some pros of buying a franchise
A franchise system is a proven system for operating the business and generating profits. Franchises offer the independence of small business ownership supported by the benefits of a big business network.
Most franchises provide the training you need to operate their business model. Franchises often have an established reputation and image, proven management and work practices, access to national advertising and ongoing support.
Well established franchises have significant market and brand name awareness, which may facilitate your sales.
Some cons of buying a franchise
To ensure uniformity, franchisors usually control how franchisees conduct business and limit the franchisee’s ability to exercise his or her own business judgement. The franchisor may retain the right to approve store locations, impose design standards, restrict the goods and services being sold and restrict the franchisee’s sales territory.
High startup costs
The startup costs for a franchise, including the initial franchise fees and expenses, such as rent, finish-out, equipment, inventory, insurance and “grand opening” fees, typically range from tens of thousands of dollars to several hundred thousand dollars.
Most franchises require the franchisee to pay monthly royalty payments. These are frequently calculated based on the percentage of the gross income of the business.
Franchisees may be required to contribute to an advertising fund. A portion of these funds may be allocated to national advertising or to attract new franchise owners, rather than to promote an individual franchisee’s business.
A franchisor can end a franchise agreement for a variety of reasons, whereas in most cases, the franchisee cannot terminate the relationship.
Franchise agreements run for a certain period of time and often only have one renewal option. Renewals are not automatic. The franchisee will probably need to pay renewal fees and agree to new terms at the time of the renewal.
Limited exit revenue
Any purchaser of your business will also have to be approved as a franchisee by the franchisor. You may not be able to sell your franchise or obtain a large payoff when exiting the business.
Business legal issues are complex. Business owners should consult with their legal and tax advisers on such matters. For more information, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or email@example.com.