Advantages and Disadvantages of Buying a Franchise

What is a FRANCHISE business?

Let’s get clear on what a franchise business is – a franchise business model is a system where a business owner (the franchisor) grants an individual or group (the franchisee) the rights to operate a business under the franchisor’s established brand and systems. This arrangement allows the franchisee to benefit from the franchisor’s proven business model, brand recognition, and ongoing support, while the franchisor expands their brand and revenue with reduced capital investment. 

As we explore the ADVANTAGES AND DISADVANTAGES OF BUYING A FRANCHISE BUSINESS, we will assume that the franchise business you are buying has been operating and is profitable (as in this is not a new site, but an existing site). Let’s compare the advantages and disadvantages of buying a franchise vs. buying an established business that is not part of a franchise. 

What are the ADVANTAGES of buying a franchise business?

1.The franchise (hopefully) is TRIED AND TESTED. You can buy into something that works and get to miss the start-up stage. 

2.BRAND RECOGNITION AND MARKETING DEPTH

1. 1. This means the phone should be ringing!  
   2. You should expect material uplift in traffic/sales when part of a franchise 
   3. People trust brands. If your brand has a good reputation, then all the better
   4. The franchise is doing the marketing heaving lifting for you, allowing you to focus on running the business

3.SUPPORT AND TRAINING
You should receive significant support across many facets of the business. Training should also be significant and give you and the staff (and thus business) a competitive advantage. Should include: 

1. 1. Systems/Processes 
   2. How to run the business – these covers everything from greeting the customers to collecting money 
   3. Software 
   4. Accounting/Payroll 
   5. Staff/HR support 

4. SYSTEMS AND PROCESSES.
They should be efficient and well-worn processes that save time and money

5. BENCHMARKING.
You should have excellent insights to what similar franchisees are doing and how you can improve your business

6.MARKET INSIGHTS AND COMPETITIVE
Your franchise should be undertaking market research, know what customers want and value and keep you a step ahead of the competition  

7. BUYING POWER
Your franchise should have the best products at the best price and be constantly negotiating on your behalf for this. 

What are the DISADVANTAGES of buying a franchise?  

1. FRANCHISE FEES
Without a doubt, a big consideration. Many franchisees will at some stage ask the question “what is the franchisor doing for their money”! You need to understand the fees and obligations under the franchise agreement.

2. What are the ONGOING OBLIGATIONS OF THE FRANCHISE AGREEMENT?
You may be required to invest money every so often or if there is a brand or similar change, invest to update this at your store.

For example, a client of ours had not longed owned a franchised gym, when the brand went through an update on the type of equipment they used, requiring the new owner to invest in a complete new fit out of gym equipment – a costly exercise!

3. You have LITTLE AUTONOMY OR INDEPENDENCE
A franchisor will want tight control on what you sell, for what price, where you can buy products from, the systems you use, etc. Even if you may have found a better way or a cheaper substitute product, it may be difficult to impossibly to make a change. You really need to accept the lack of autonomy you will have in how the business is operated. You need to appreciate that the franchisor really wants you to be like an employee and follow the rules.  

4. TERRITORY AND CUSTOMER LIMITATIONS
This can limit the growth of a franchisor and under the terms of the agreement, can become more oppressive as more franchisees come into the market. You may initially be enjoying a greater territory or freedom in where you can sell and to whom, which can over time reduce. This can limit the ultimate growth potential. You may inadvertently find yourself competing with the same franchise or a franchise owned store that has recently opened.  

5. RESTRICTIONS ON SELLING
You need to understand the agreement fine print. You may be limited to whom you can sell too, and the franchisor will likely have the final say/approval on who can be a franchisee.   

6. BUSINESS REPUTATION RISK
One in all in, if a franchise receives bad press, then this will taint everyone associated and may drastically reduce the value of your business, even when your business is still performing well.  

Buying a franchise offers a mix of opportunities and challenges. On the one hand, you gain access to a tried-and-tested business model, brand recognition and robust support systems, all of which can provide a strong foundation for success. On the other hand, the costs and restrictions imposed by the franchise agreement can limit your autonomy and growth potential.

Understanding both the advantages and disadvantages of buying a franchise is crucial before making a decision. By carefully weighing these factors and seeking professional advice, you can determine whether a franchise is the right business structure for your goals and circumstances. 

At Rogerson Kenny Business Accountants, we pride ourselves on being experts in business advice and strategy. Whether you’re considering buying a franchise, starting a new venture, or need guidance on optimising your existing business structure, our team is here to support you every step of the way.  

With years of experience and a deep understanding of the complexities involved in business decisions, we provide tailored solutions that align with your goals. Trust us to help you make informed decisions and drive your business towards long-term success.