Purchasing a franchise can be a good way for a first-time entrepreneur to get started in business. A lack of business expertise or experience can be offset by the support of the franchiser who has a stake in the success of your business. The franchiser can also help in areas such as obtaining financing. While there are several advantages to owning a franchise, some disadvantages may also be present.
Expense
Starting a franchise can be expensive, with Gaebler.com indicating that you could easily pay $50,000 or more for costs for a place of business and equipment. Your franchise agreement may also require that you pay regular fees to the franchiser and pay a percentage of your profits in the form of royalties as well.
Lack of Freedom
Your franchise agreement will require you to follow certain operational procedures from which there is no deviation. If you're the type of person who likes to do things her own way, you may find these procedures somewhat restrictive. If you have some unique marketing ideas, for example, you may need to seek the approval of the franchiser before you can implement them.
Paying for Others' Mistakes
Because you will be operating under a brand name that may be recognized throughout a region or even the entire country, you may suffer the consequences for the failings of other franchisees. For example, if you operate a fast-food franchise and a case of food poisoning occurs at another location, your business may also suffer as a result.
Getting Locked In
Once you enter into a franchise agreement it may be difficult to get out of it if it turns out the business is not for you or you're not making money. Your agreement will likely include strict terms or penalties for breaking the contract. As a result, you may be stuck with a huge investment for a long time if you can't find a buyer.
Business Failure
Just because you have the support and proven business model of the franchiser, there is no guarantee of your success. As with any business venture, factors beyond your control can lead to the demise of your operation. A competitor offering a wider product selection or lower prices may open across the street, or your products may become obsolete in the eyes of the consumer over time. Because the franchiser often controls factors like pricing and product selection, your hands may be tied as far as making changes.
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