Many of our members are new to business which is why we talk such a lot about those first steps. Earlier this year we looked in depth at the 7 Steps to Success when starting your business, and Starting a Business – What Will it Be?

The second post particularly looked at how you would choose the right business for you, and one thing we considered in that post was franchises. I thought I’d take this opportunity to explore that a little further.

We have a number of franchise holders who are members of our networks, in fact I have – in the past – bought into a franchise opportunity myself. These can be great opportunities. In this post we’ll look what a franchise business is, the advantages and disadvantages of starting a franchise business, and how you will know if a franchise is right for you.

Should I Start a Franchise Business?

Firstly, what is a franchise business?

A franchise business is a business opportunity in which an individual (the franchisee), buys into an established business, gaining the right to use the trademarks, products and business model of the company (the franchisor). The franchisee then operates under the established brand name of the franchisor, receiving ongoing support in exchange for initial fees and continued payments.

Advantages of a Franchise Business

Established Brand Recognition

One of the hardest parts of establishing your new business is creating a recognisable brand. With a franchise, that foundation has already been laid. While not all franchises are as recognisable as McDonald’s or Subway, you’ll still be starting with an online presence and the reviews of previous happy customers.

Proven Business Model

When running your own business, setting up of operational systems and managing background administration can cause real anxiety and frustration – particularly for those who haven’t run a business before. Taking on a proven business model with existing products, marketing strategies and operations, can significantly reduce that burden.

Ongoing Support

As a franchisee, your franchisor will benefit from your success and will normally therefore provide ongoing training and support to ensure you achieve optimum business growth. You also become part of a team or community, and are likely to find other franchisees will support you too.

Clear Exit Strategy

While this may not be an immediate concern when starting your business, it will certainly become a consideration at some point. At the stage when you no longer want to continue in your business, there are definite advantages to having a franchise business, with the larger organisation behind it, to support your next move.

Initial Investment Price

While there will be an initial outlay when buying into a franchise business, this is normally a competitive price and will often include those essentials you need to get going. A secondary benefit being that your franchisor has already researched what you need to start this business so you’re not spending on things you won’t need. With any business investment, it’s important you consider what return on your investment you can expect; with a franchise you may determine there is less risk.

Financial Benefits of Scale

When running your own independent business, the costs of financing your business are on you alone. Within a franchise, you’ll likely benefit from cheaper product costs with approved suppliers, while marketing costs such as websites will also often be cheaper – or perhaps included in your franchise package.

Disadvantages of a Franchise Business

Limited Autonomy

If you’re looking to start a business to take control of it and create something which is all yours, you may not want a franchise. Within a franchise model, the franchisor will have operational guidelines and restrictions which you may find inflexible depending on your own ideas and the franchisor’s guidelines.

Profit Sharing/Royalties

As your new business grows, you’ll be required to continually make payment to your franchisor. It’s important to understand the extent of these payments and what they will mean to the profitability of your business – particularly in the early stages.

Growth Restrictions

A franchisor will make their decisions based on the larger business, decisions which may not suit your individual circumstance. There will likely be restrictions on product or service development, pricing strategies and marketing initiatives, or geographical restrictions to who you can work with. Will you be able to achieve your goals within these parameters?

Reliance on Others

While working under a brand that isn’t yours, you will be reliant on those leading that brand to make decisions which you can’t control. It’s therefore possible you may suffer from bad sourcing decisions or negative publicity over which you have no control.

Initial Investment Price

Although for some franchises, your initial investment price may be competitive (I did, after all, include this in the advantages section above). In other situations, you may find the initial outlay for a franchise business is prohibitive. When committing to the franchise you’ll be required to make this specified payout before you can get up and running; this is unlike managing an independent business where you can make decisions about spending in your own time.

Your Own Business

Whether you choose a franchise business will be based on a number of factors. Have you found a franchise which appeals to you and your motivations or skills? You’ll need to consider your personal goals and aspirations as well as your current – and planned – financial situation. If you find the right product or service and the finances work for you, you’ll also need to consider the structure of the franchise model and your alignment with the values and vision of the franchisor.

While a franchise business offers the benefits of established branding, support systems and proven success, it also comes with a set of limitations and financial commitments. You’ll need to consider the pros and cons of the opportunity, do thorough research and maybe seek professional advice, to establish if this is the right business for you.

I’d encourage you to review:

• The franchise contract, get a solicitor to make sure you understand exactly what you’re agreeing to.
• Exit strategies, what are your options? Can you sell? Give it back? Are there renewal costs?
• Ongoing training and support, what can you expect?
• The greivance procedure.
• Operating guidelines, what is already in place – determined by the franchisor – and do you need to consider your own on top of these
• Speak to existing franchisees – and not just their top performing one – including, if possible, those who have left.
• Get clear on your numbers – investment, margin and potential net profit.

Taking the franchise path can lead to a fulfilling business opportunity and sustainable small business growth – is it the right choice for you?

Talking to others will help you find the guidance and support you need. We have a diverse business community at Your Business Matters, providing an opportunity to connect with other business owners, share experiences, and learn from each other. Find your network at Your Business Matters networking events.