There are many potential benefits of buying a franchise, such as having access to well-established business and accounting systems, centralised marketing and a proven business model. Being part of a well-known national brand also has an appeal for many business people.
In exchange for the franchise, the franchisee must pay agreed charges, normally including a royalty on sales.
There are potentially several advantages of being a franchisee such as:
- Limiting risk; the business is not a new one but a tried and tested venture that has been successful elsewhere;
- Training; the franchisor usually provides extensive training and advice;
- Corporate image; the brand, trademarks, designs etc. have already been protected and established in the marketplace;
- Savings in time; the business model is already in place and the franchisee can focus on running a successful business;
- Economies of scale; it may be cheaper for franchisees to obtain the required supplies and services than for non-franchisees;
- Customers; they may already be familiar with the brand and trust it more readily; and
- Finance; banks may be more willing to invest in you because the business model is already a proven success.
However, there are also potential disadvantages to being a franchisee. Often, the costs of running a successful franchise can be appreciably greater than the cost of going it alone, due to the impact of sales commissions and central charges.
It is also common for the franchise agreement to limit the range of activities that the franchisee can carry out, which may prevent a profitable opportunity from being exploited.
The agreements need to be read carefully and thought through, especially the terms and the clauses that specify the degree of geographical or other exclusivity to which the franchisee is entitled.
If you are considering a franchise, it is critical to do your research carefully and diligently before committing yourself. Taking expert professional advice is crucial and the earlier you do so, the less likely you are to waste time and possibly make an expensive mistake.
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