The Pros and Cons of Buying a Franchise
Things to Consider Before Investing in a Franchise
Starting a business can be a big risk, but it also offers high rewards. The same can be said about buying a franchise.
Buying a franchise offers so many benefits to prospective entrepreneurs, but it’s not without some drawbacks. If you are considering starting your own franchise, it’s important to weigh all of the pros and cons so you know exactly what you are getting into and aren’t starting this venture with unrealistic expectations.
In this article, we will list all of the pros and cons of purchasing a franchise that every prospective franchisor needs to consider.
What Does it Mean to Buy a Franchise?
A franchise is a type of business that licences its name and branding to individual business owners known as franchisees.
The Pros of Buying a Franchise
There are so many advantages to owning a franchise, which is why this business model is so popular with prospective entrepreneurs.
Some of the main benefits include:
- Less risk and a lower failure rate
- Reduced start-up costs
- Support and training from the franchisor
- Existing brand recognition
- Easier access to financing
- Support and guidance when it comes to marketing and advertising
Below, we dive a bit deeper into the benefits of running your own franchise.
It Comes With Existing Brand Recognition
One of the biggest hurdles new businesses face is building brand recognition and generating a loyal customer base.
With a franchise, franchisors have already put in the work to develop brand recognition, and in many cases, have become household names. By buying into that franchise, you get to capitalize off of that brand recognition and will have an easier time bringing in customers because people are already familiar with the brand.
Training From the Franchisor
One of the biggest benefits of buying a franchise is that you get access to training from the franchisor.
While the level of training provided to franchisees is different from franchise to franchise, most franchisors provide training onside and at the corporation’s headquarters, along with ongoing training when requested. The training typically focuses on:
- Selecting a location setting up operations
- The franchisor’s standards and procedures
- Branding and merchandising
- Recruiting and training employees
- Customer service
- Marketing and advertising guidelines and recommendations
- Sales procedures
- And more
Ongoing Support From the Franchisor
After the initial training, a franchisor will also typically provide its franchisees with ongoing support to help ensure the franchise is successful. This can be by phone or video chat, or even onsite visits.
There is Less Risk Involved
Because a franchisor already has branding and licensing in place, along with brand recognition, customer loyalty, and a business model that has been tested and proven to be successful, investing in this business carries significantly less risk than starting your own company from scratch.
Be Your Own Boss
Buying your own franchise provides you with all of the benefits of being a business owner, without all of the risk. This includes having the flexibility to create your own schedule and becoming financially secure.
The Cons of Buying a Franchise
While there are so many benefits to buying a franchise, there are some disadvantages that prospective franchise operators should consider. We have listed them below.
You Must Use the Franchisor’s Branding, Systems, And More
When buying a franchise, you don’t get any creative control when it comes to branding, products and services, and even day-to-day operations. You must follow the systems and procedures put in place by the franchisor.
While this may be difficult for some potential franchisees to wrap their heads around, it’s important to remember that there is a reason the franchisor is so successful. Plus, by following these systems, your business will have a higher chance of success.
You Must Pay Franchise and Royalty Fees
In exchange for getting to use a franchisor’s name, branding, and systems, a franchisee must pay a franchise fee along with royalty fees.
A franchise fee is an upfront cost that the franchisee must pay the franchisor that typically ranges between $10,000 to $100,000. The fee is paid at the beginning of the franchise term and must be paid every time you renew your franchise agreement and start a new term.
Royalty fees, on the other hand, are paid on an ongoing basis, either weekly, monthly, or quarterly. The amount that the franchisee will have to pay in royalty fees is determined by taking a percentage of their gross sales. This typically ranges between 4% and 12% depending on the franchisor.
Startup Costs Can Be Expensive
Just like with any business, the startup fees required for starting a franchise can be a huge financial investment, typically ranging from $100,000 to $300,000.
How much you can expect to pay in startup costs is dependent on the following factors:
- Your franchisor
- How much your franchise fees are
- Royalty fees
- How much capital you start with
- Whether you are buying or leasing your space
In many cases, a franchisee will need to obtain a loan to cover startup costs, which means loan payments will cut into your profits. This is something you will need to consider.
Is Buying a Franchise Worth It?
While buying a franchise has both pros and cons, the advantages far outweigh any drawbacks when you partner with a great franchisor.
If you are considering investing in a franchise but aren’t sure if it will be worth the risk, consider partnering with Gorilla Bins.
Gorilla Bins is Ontario’s leading waste management franchisor with several locations across the Greater Toronto Area.
Gorilla Bins offers its franchisees lots of training and support and has a proven track record of success, having tripled its revenue over the past five years.
Get in touch with our team today to learn more about Gorilla Bins and how we can help set your franchise up for success.