CONS OF FRANCHISING

CONS OF FRANCHISING

Initial and continuing fees: Franchisors will charge new franchisees a lump sum to startup a business using their brand name. Although this can be under £1,000, the amount varies greatly according to the franchisor.

Many will insist that you purchase most of the materials you need from your own pocket, and some will demand that you have a certain amount of working capital before you are even considered to be a suitable candidate.

Unfortunately, the costs don’t end there. Franchisors will take a regular slice of your takings as royalty fees. If you have a tight profit margin, the bad news is that this fee is deducted from your actual turnover, not the surplus you make.

Once your fixed-term contract is up with your franchisor, your wallet will again be needed, as you will have to pay another fee to extend the time you can trade under the company’s name. This is based on how well your firm is doing at the time.

Although these costs may compare favourably to those if you were starting up on your own, it is worth remembering that you will often have to deal with all the normal overheads that a business generates. It all adds up to a fairly large amount and you must be sure that you have the necessary capital behind you before you embark on your franchise.

You do things their way, not yours: As mentioned before, each franchisee will gain training and guidelines on how the business should be run. Although this is a helpful leg-up into running your own firm, after your franchise is established you may feel your entrepreneurial creativity is somewhat restricted.

You may get slightly frustrated if your plans for your outlet are hampered by company policy on what you can and can’t do. Franchisors generally like their outlets to look and feel the same way, so you will have to work within someone else’s idea of what is best for your firm.

As well as restricting your independence, the penalties for falling out of line with your franchisor’s wishes can be harsh. Many franchise contracts stipulate that any wild alterations to the running of your franchise can lead to the termination of your agreement.

Other people’s decisions could sink your franchise: The lack of actual control you have over your franchise means that even if you run a profitable outlet, you could still lose everything if your franchisor makes bad business decisions and the firm fails.

As well as seeming vastly unfair, news of such catastrophes can often come out of the blue if your franchisor doesn’t keep you up-to-date with developments.

Another potential source of trouble that is out of your hands are the actions of other franchisees. One bad franchise could ruin the good name of the company, dragging down your profits as well as your reputation.

You cannot escape hard work: If you take on a franchise under the impression that the franchisor will do all of the hard work for you while you sit back and watch the money roll in, you will be in for a nasty shock. Working weeks of 60 hours or more are not unheard of among franchisees attempting to get their business off the ground.

Implementing the standard working practices of your franchisor and then improving on them is a massive task and one that takes dedication and a lot of support from family and friends.

This Post Has One Comment

  1. Nana Agyeiwaa

    I am interested in the franchise. What do I need? Infact, how much capital am I looking at?

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