Pros and Cons of Franchising; Is it Really Worth it?

It’s always an interesting thing to talk about franchisor versus franchisee dynamics. You do retain a great deal of liberty to be an entrepreneur, but your creative freedom will still be hindered to some degree, as there are multiple decisions you simply cannot make, even though you are the boss of that specific extension of the franchise. Making it a good opportunity to finally express your capitalistic spirit, however, with considerable limitations, as you still are in fact not the owner of the location. With this said, we will talk about some of the pros and cons of getting into franchising with a focus on the psychological aspects of being a business owner.

Lower Risks

Franchising will coddle you to some extent, you will have way lower risks of failure than if you would be starting a small business. Franchising does not offer only lower risks in the free market due to their already established parent company but is also better in times of recession. When the economy is going down, it is always better to have actual capital at your disposal than liquid cash. And franchises are usually harder to break during recessions. Meanwhile, small independent business owners will suffer more during a recession than regular businesses. Saving enough funds for a recession is a good way to combat this, but in a “spending society” we are encouraged to spend money rather than save it, so this strategy can prove difficult to implement.

You Have a Guiding Hand

There is a subtle matter of guidance when you buy a franchise. Most franchisors will still help you along the journey, especially when starting out. It is in their interest for you to be as prepared as you can be so that you can generate more profit for the franchisor and remain a steady source of income. This is their interest. Now, if you don’t have a lot (or any) experience in franchising you can look at this as a much less punishing opportunity, as the franchisor will usually do their best to guide you through the process, offer you training, necessary documentation, etc. Unlike with opening a small business (where you are completely left on your own), in franchising, you have an opportunity to grow before even starting your work officially. This is a massive positive aspect of franchising for people with little to no prior management experience, or people who are terrified of opening their own business. All that freedom with being an independent business owner can be nice, but it can also be absolutely terrifying.

No Need for Branding

Due to already operating under an established brand, you will not need to spend countless hours coming up with your own brand identity (it would still be preferable to individualize the franchise you have purchased). This can get a massive load off your chest, as you won’t have to worry about coming up with something entirely new and original from scratch. Having a team of (proven) experts at your disposal will immediately make the job a whole lot easier.

Marketing Assistance

Similar to the previous paragraph, you will have a qualified team to do most of the work for you, so this makes the entire job of being a franchisee/business owner a lot easier to manage as you won’t be smothered by tons of work that will constantly require your attention. The process is simple. You pay a certain sum to your franchisor and that money will be spent on regional/national marketing campaigns handled by experts with the goal of boosting your own business.

Limited Decision-making

If you are an aspiring and talented entrepreneur that wants to show the world what innovations they can bring to the table, then don’t go with franchising. Franchising, even though it’s safe, limits your creative potential and control over the business. Of course, you still maintain a high degree of control, but you are still an extension of the body that is the franchise, and because of this, your independence will be severely limited. It isn’t that the higher-ups are cruel or want to squash your ambitions, you just have to realize that you are the one assimilating into them, not the other way around. The franchise already has an established brand, business model, and system that has been proven to work and they don’t plan on changing all of it for you. So there will be restrictions on what kind of products you can sell, where you operate, and the suppliers you use.

All of Your Information Goes to Your Higher-ups

Remember how we mentioned that your franchisor cares about your profits? Yeah… When you are operating under a franchisor, you will be bare as a bone when it comes to your business finances. Everything gets shared with corporate, which means all of your profits and expenses. This is more of a subjective negative aspect, as some people will be okay with sharing all of this information, but others will feel powerless or not in control when forced to give all of their financial information. So once again, if you are coming into this expecting extensive freedom on the level of owning your own business, franchising is not for you.

High Investment Fees

One of the main issues with franchising is that it has a high barrier of entry set. This can be extremely demoralizing on an individual as you will start having thoughts of doubt, whether it’s worth the investment, etc. Starting your own business does have its issues but it is also easier to actually start. And chances are, you won’t have to take out massive loans to start a small business, unlike with franchising.

You are at a Risk of Losing a Lot of Profits

The agreement you made is binding, so read what you are signing very, very carefully so that you do not regret it later down the line. If you sign off a large percentage of profits to go to your franchisor, it can be devastating to face reality after you see how much money you will give away for your hard-earned money. So always make sure to consult an accountant before signing any legally binding document. If you are not the patient type, then hire a lawyer to analyze the deal you are about to make. If you are going confidently into this thinking you are going to make a good profit, make sure to take every step so that you actually keep that profit.

All in all, franchising has its ups and downs, but it comes down to you and what kind of person you are, what are the funds at your disposal and how much do you care about business independence over financial security. Hopefully, this article has made you think deeper about the benefits and troubles of trying to be a thriving capitalist.