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.

Franchisees own their business but must use the franchisor’s name and branding, follow its guidelines, branding, rules, and systems, and pay franchise and royalty fees to the franchisor.

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.