New Business Tips: The Pitfalls And Benefits Of A Franchise

Pros and cons of franchises for those new to business.

Franchises are a great way to start your own business without having to start from scratch. However there are pros and cons to this business strategy that should be weighed before jumping into a franchise venture. The cons against owning a franchise are basic and deal with control and financial distribution.

CONS

1. You have to follow the standards and procedures of the franchise. This will limit your ability to experiment with your own strategies and ideas.

2. You will have to pay franchise fees to use the name and trademarked images.

3. You will have to pay royalty fees out of your earnings.

4. You still have to answer to the owner of the Franchise Company and follow their guidelines on how to run the business.

5. You are locked into a location, product, etc. for a fixed period of time, which usually is about 20 years.

6. You have to agree not to open another business that is competition with the franchise during the time you own the franchise and for a period of time after you sell the franchise.



Even with cons to this business strategy there are definite pros to owning a franchised business. The pros of buying a franchise deal with startup ease, financing, profit, and support and training.

PROS

1. The biggest advantage is the reduction of risk. You're entering into an established business with a recognizable name and product.

2. It is easier to get a franchise off its feet.

3. It is easier to start making a profit.

4. You get special prices on supplies from the franchise warehouse that often buys in bulk at a much lower price.

5. Because of the projected earnings and reduced risk, it is easier to get financing when starting up a franchise.

6. You have instant recognition.

7. You get management training.

8. You have the advantage of professionally made national and regional advertising campaigns.

When considering buying a franchise it is important to know what you want out of a business and see if franchising is right for you. To determine if the pros outweigh the cons make a list and compare. First determine what issue are the most important to you. If you have venture capital already in place the financing portion may not be as important as the level of support and training that is provided. If you want to open a franchise in an area where real estate is hard to come by, then you may look to a company that provides a building for you. Even if the rent is 8.5% of your sales, this may be less than market value for real estate in your area. If you find that the pros do in fact outweigh the cons in your situation than it may be time to start looking into buying a franchise of your very own. If you feel uncomfortable doing the research and leg work you may hire a franchise consultant to help you along the way to opening your own franchise business.

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