Franchising opportunities are alive and well, with more than 712,000 franchise owners in the U.S. operating in more than 830,000 establishments. For those desiring more control over their lives, the idea of opening your own business in a short period of time, using an established business model, and fully disclosed up-front costs, is an attractive proposition. However, franchising is not for the faint of heart. The following will provide you with a rundown on the pros and cons of owning a franchise.

Why you may consider buying a franchise

While there are no guarantees that the business will be successful, owning a franchise does limit some of the risk. Before buying you can review company data and insights from other franchisees to understand what you are investing in. From day one, franchisees can take advantage of a proven business model with established brand recognition.

You can enter a new industry without having to go back to school. As a franchisee you will have continuous training and support from the company headquarters. Your business is essentially turnkey, with a tested step-by-step system to begin operating immediately. Plus, as part of a larger network, you can take advantage of corporate buying through economies of scale for discounts on equipment and inventory.

In many instances, corporate headquarters will connect fellow franchisees so they can share their expertise and advice. Often, franchisors will host conferences for franchisees to come together and share best practices.

Why owning a franchise may not be for you

To be considered a franchise, the parent company must charge the franchisee an initial franchise fee, which is often around $35,000. What this buys you is the right to use the company name for a specified number of years and the company’s assistance in starting up the business. While this is a major investment, remember that you are paying for all the work that was put into creating the brand.

You should know that the franchise contract stipulates that you are required to follow the business system and represent the brand as specified. As part of the deal, you’ll be paying royalties to your franchisor for the life of your business. Additionally, you will only be able to buy products from an approved list of vendors.

Notably, if the national brand experiences negative publicity, your local business may be affected. Bad press can cost brands millions of dollars in lost revenue.

Have questions?

Those dreaming of owning a franchise should enter into the business with clear eyes. During the first one to two years, you can expect the business to generate lower-than-expected earnings before it gets up to speed. If after knowing the pluses and minuses you are still willing to make the investment and put in the demanding work, then franchising might be the right move for you. If you have questions, our Business Tax and Advisory team is here to help. Contact us to learn more.

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