Tom’s Franchise Information Blog

Your circumstances in life have changed. You are fed up working for someone else. You have heaps of equity in your house so that now is the time to have a go at running a business yourself. Friends of yours own a successful franchise and tell you how wonderful buying a franchise is. You decide to consider such a model.

The choice is simple, or is it? What should you be aware of when making this decision?

Pros

Depending on the franchise, its longevity and reputation, benefits include:

• Brand awareness;
• Training and support from the Franchisor;
• Economies of scale through purchasing power (discounts from suppliers);
• Benchmarking with other franchisees (leading to sharing of ideas);
• Ready made systems to run the business;
• Greater chance for success;
• Experience (thereby limiting chance of making same mistakes already made by the Franchisor or other Franchisees); and
• Market research and latest developments in your sector

Cons

• Limitation in decision making process

Franchising is a system and Franchisors want consistency across their franchises. Therefore, for example lets look at if you wanted to advertise and you wanted to have your own stamp on it rather than the national campaign. Most franchises agreements would state that it must be approved by the franchisor first. Be very thorough when reading the terms and conditions of the franchise agreement prior to signing. Also be aware that some of these terms and conditions may be negotiable. If you dont ask, you will never know.

• Risk

A Franchisees business will depend on the strength of the Franchisor. If Franchisor management is poor or it is struggling financially, this could lead to problems with your business. A fish rots from the head as they say so that if there are problems at the top, your reputation could be adversely affected by the actions of the Franchisor and fellow Franchisees.

• Irrelevant Strategies

You may not agree with the strategies being taken by the Franchisor to grow the franchise or combat threats to your business such as competition. Your franchise fees are being used to help fund some of these decisions you disagree with. Whilst as a Franchisee, you will have a right to be heard, ultimately, you may be in the minority when decisions are made. It may also be that because of your location some strategies are of little benefit to you.

• False Sense of Security

Too many believe that franchising is a sure bet for success and that nothing can go wrong or that management skills arent required. Whilst systems help minimize the impact of skill shortfalls, smart decisions still have to be made in the day-to-day running of your business. Usually, a Franchisor will assess your skills before offering you the franchise as they know that if you fail, it will be harder to attract future franchisees to other locations. However, some are just keen to get another Franchisee under the belt so that you shouldnt rely on their judgment as to whether you have the skills to run the franchise successfully.

Conclusion

There are a lot of positives when considering franchising because I am a true believer in systems when it comes to being successful. There are numerous examples of many successful franchises here in Australia and overseas so that careful consideration of taking on a franchise is warranted. On the other hand, you can still go into business and develop your own systems and even look at franchising your own business if you decide to.

Like anything, do your research! Seek advice from professionals and industry bodies before making your decision. Buying a franchise is no different from buying or setting up any other small business due diligence is paramount to increasing chances of your business success.

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