Is buying a franchise a good idea?

More and more people are considering a franchise investment because it allows them to go into business FOR themselves but not BY themselves. When you invest in a franchise, you’re leveraging a business model with a built-in customer base. But before jumping in and shelling out a huge capital investment, it’s best to consider the full pros and cons of buying a franchise.

In this article, let’s look into the advantages and disadvantages of franchising one by one.

Pros and cons of franchising

Everything has its pros and cons. Franchising as a business model has a lot of benefits but also has its own innate drawbacks. To help you make an informed decision, let’s explore both the pros and cons of franchise businesses.

Pros of franchising

From increased brand recognition to ready-made business plans, franchising does have a lot of perks, and we’ll delve into every single one of them:

Business assistance

One of the main reasons people invest in a franchise is that they get to run their own business and be their own boss while receiving strong support from the franchisor. Franchises offer different levels of support. Some offer turnkey business operations wherein everything from the supplies, equipment, and advertising plan are laid out. Some may not offer everything but do offer knowledge and guidance in the franchising business. Most franchises also assist in choosing the best site for the franchise location.

Profits

The main point of making investments is to drive profits, Since most franchises are recognisable brands that already have loyal customers, you don’t have to do a lot of marketing to start making profits and gaining traction. Although franchising has a higher upfront cost, the right franchising opportunities can offer a high return on investment.

Be your own boss

Although there’s less independence in a franchising business as there are already standardisations in place, you can still be your own boss and run your own business, choosing your own schedule and having more autonomy over your career. It’s an opportunity to enjoy the benefits of having a business without the risks associated with starting an independent business.

Buying power

If you go solo, you would need to order products and supplies in bulk and have to pay more money per supply because your order quantity is small. Franchises require a bulk supply of goods which helps them rake in a great deal of discounts. The size of their network allows them to negotiate better deals and increase their buying power.

Lower failure rate

Franchises generally have a lower failure rate as compared to solo businesses. Buying the right franchise is essentially joining an already successful brand and a network that offers valuable support and advice. Especially if the franchise has a proven and tested business concept, you can rest easy knowing that the products/services are in demand and systems are in place.

Easier to finance

Because franchises are seen by financing institutions like banks as less risky, the venture can be easier to finance than standalone businesses. Funding solutions like Swoop can easily help you access funding for your franchise investments, be it loans, investors, or equipment financing.

Drawbacks of franchising

Besides limited control, there are other drawbacks of owning a franchise including:

Higher setup costs

While you’re free to bootstrap a standalone business, franchising requires fees, minimum amount of liquid capital, and higher setup costs. Purchasing a franchise is generally more costly.

Strict rules set by the franchisor

Since the main idea of franchising is replication and standardisation, you need to abide by the rules set by the franchisor. Whether or not you agree with the rules, you need to follow them, but altogether, they are set for the greater good of the entire franchise network.

Royalty payments

This is probably the biggest downside to franchising, but as long as you’re choosing a great brand that drives high ROI, it can still be a wise investment choice.

Contractual obligations

Franchise agreements are generally written to serve and protect franchisors more than franchisees. Breaching contractual obligations may lead to losing your franchising license or business.

Negative press from brand

While the franchisee can enjoy the marketing efforts and promotions of the franchisor, any bad PR associated with the brand can affect every franchise location and can be bad news for all franchisees. The key is to take your time choosing the right brand with a trusted reputation and loyal built-in customers. Risks are always a part of the process, but you’ve got to look at the big picture.

Is franchising safer than a savings account or stocks?

Franchising is a great way to diversify your income stream without necessarily starting from scratch. If you’re saving all your money in stocks or a savings account, you won’t be able to build a stronger portfolio that can sustain your lifestyle through retirement. Franchising is generally a great way to make use of your cash where you can enjoy more returns with lower risk.

In a nutshell, franchising is for you if:

1. You prefer structure and general orderliness. Franchise models often provide clearer roadmaps of success.
2. You appreciate being a part of a network instead of going the ‘lone wolf’ path. Franchises have existing networks that collaborate and work together towards a common goal.
3. You’re an active listener. If you want to be a franchise owner, you’ll receive a supply of advice that you should be ready to digest and process.
4. You believe in the power of replication. It’s basically the secret sauce of franchising success. If you appreciate this level of standardisation, franchising can be a perfect option for you.

Start or grow your franchise with Swoop!

Whether you’re a brand new or a serial franchisee, access the funding you need with Swoop. We’ll help you secure the best deals on equipment refinancing, asset refinancing, and bank loans, among many other financing options. Ready to access funding? Sign up today!