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Are franchises a good business model?

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On the surface, it would appear that when it comes to starting your own business, going the franchise route is nearly guaranteed to be fail-safe.

After all, a trusted brand is already established and construction techniques are fine-tuned in a way that you can open your own business and start serving customers before you know it.

Customers driving through town will instantly recognize the brand and will also have an understanding of the product sold. Depending on whom you ask though, these attributes are what make franchises such a bad business model.

Here are a few reasons why some people feel that franchises are a bad idea; after reading these reasons, come to your own conclusion regarding whether owning a franchise business is right for you.

No Freedom of Control

Purchasing a franchise means you must abide by a company’s rules. You cannot close your business early even though you may need to take off work earlier than usual, and you're not going to be able to sell products you believe will sell unless the corporate office approves it. However, this is exactly what makes franchises work so well.

Customers expect a certain decor and menu when they enter a franchise, and if individual chains were allowed to make their own rules, customers would be confused and the corporate office would likely lose money. Some business owners don't need full control; they just want to own their company in a structured environment and are happy to abide by the mandatory rules of a corporate office.

High Startup Fees

Most franchises charge $50,000 to $100,000 simply to use their name and processes. Some experts argue that the money spent on a franchise business could be put to better use, such as starting one’s own business for a fraction of the cost in most cases.

The truth is the leasing fees pays for itself via future sales. You won't have to market your company around town or hope that travelers merely passing through the town will take a chance on what they might see as a ‘mom and pop operation.’

Annual Royalty Fees

In addition to paying an initial franchise fee, franchise owners must also pay royalty fees on their sales every year. Yet it isn’t as bad as it sounds. Annual fees are only based on one’s sales figures. In addition, a franchise benefits annually from corporate staff who research new products and conduct fresh, professional advertising campaigns.

The franchises are a branch of corporate designed to earn money for the company, and paying royalty fees are certainly a fair trade.

Banned From the Industry

As an example, let’s assume that an individual exists that love hamburgers so much, they opt to open their own McDonalds restaurant. Let’s also assume that after 15-years in the industry, this person wants to take the lessons they learned and open their own hamburger joint.

Unfortunately, under most franchise agreements, this would not be possible. Even though investing $100,000 seems like an expensive way to learn about the fast food industry, non-compete clauses are very prevalent in franchises. This is simply protecting the franchise from a person getting acquainted with distributors and learning secret business models only to basically steal them for their own profit.

Starting a franchise is a big decision that should only be jumped into after some due diligence. Depending on how you want to run your own business, a franchise may or may not be right for you. As with all major steps in life, it is vital that you think hard about whether or not you want to open your own franchise or own your own business solely on your own.

Note: For more information on franchise opportunities and investments, visit Franchise Expo, the place to find the best franchise opportunities available.

Contact: Marv Dumon at marvin.dumon@gmail.com

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