Are you interested in starting your own business? We can understand the appeal, because it can be exciting but challenging.
You may feel like starting a company from scratch, but creating a franchise has a lot of benefits. However, there are also some downsides as well, which can make it hard to decide if owning a franchise is the best idea for you.
Here are a few things that you will need to take into consideration in detail before deciding. We also have an article to help you choose the best franchise if you want to learn more.
FOOD NEWS: 10 celebrity chef restaurants to try in Arizona
Biggest Benefits of Starting a Franchise
There are a lot of reasons why franchises are very popular. Some of the biggest benefits are shown here.
Brand Recognition and Support
You have a lot more trust when you buy a franchise. The United States had around 805,500 franchise-owned businesses a couple of years ago, which was 11.4% of all businesses. Customers will feel more comfortable visiting a company with a popular brand name.
Get Support from the Parent Company
You also receive help with advertising, training, and other operations. If you need help bringing in more customers, most franchises can connect you with a staffing agency that works directly with them. This kind of help can make the hiring process easier and enable you to focus on running your business. This can help you launch a franchise with no experience.
Lower Failure Rates
You have a lower risk of failure when you run a franchise than you would with an independent company. New franchises have only a 10% failure rate. However, independent businesses must face a 60% failure rate.
One thing that you need to keep in mind is that around 4.7 million new businesses are started every year. You can be a little more at ease with the fact that many choose the franchise route because it gives them a successful model to follow.
Fewer Staffing Challenges
You may struggle to hire and retain top workers if you are running your own business that you built from scratch. The good news is that many franchises help their franchisees with staffing. For example, you can find a McDonald’s Staffing company if you own a McDonald’s restaurant.
One survey found that around 11.3 million small business owners struggle to find workers to help run their business. The same survey also found that over half of business owners with 50 or more workers have problems retaining workers.
The labor shortage has been a lot worse over the last few years. The COVID-19 pandemic created what most call “The Great Resignation.” 47.8 million workers left their employment in 2021. The United States Chamber of Commerce reports that the trend continued with more than 50 million leaving in 2022, and 30.5 million leaving through August 2023. All these numbers lead to a difficult employment market that can affect your franchise too.
Downsides of Starting a Franchise
There are clearly a ton of great reasons to consider starting a franchise. However, there are also some drawbacks that you have to be aware of as well. Some of the biggest downsides are shown below.
Higher Upfront Expenses
You have to prepare yourself for greater upfront costs. Franchises have expensive upfront costs and require you to contribute to a marketing fund. You might have to pay royalties as a percentage of your sales. These costs can accumulate in a flash.
In spite of that, the higher cost can be due to an investment in a system that is already up and running. You might enjoy a quicker return because the process and brand are already in place. Always check if the numbers align with your budget.
Limited Flexibility
You’ll be expected to stick to a preset business plan. Changes to products, prices, or marketing usually need to be approved by the franchiser. This can feel restrictive if you want to put your own stamp on the business.
While consistency is what keeps a powerful brand alive, this also means that you give up some decision-making control. You have to be comfortable with working within a highly structured format.
Franchise Fees and Royalties
You can expect periodic fees. Royalty payments and franchise fees are made periodically and are usually a percentage of your revenue. Such an arrangement ensures that you enjoy continued support and benefit from the brand’s reputation. However, it also means that your margin will be reduced with each payment.
You ought to factor these costs into your business plan. They are a natural part of running a franchise and can have an impact on your overall profit.
Difficulty Adapting to Market Trends
You will discover that a franchise has less room for modification. The established system can also make it more difficult to react promptly to market changes. For instance, most businesses had to adjust after the pandemic when there was a shortage of labor. Franchises, with their inflexible systems, do not always find it simple to make speedy adjustments.
You must decide if you prefer a steady, proven approach or if you would prefer the freedom to experiment. There are advantages and disadvantages to each.
Buying a franchise provides you with a known name, fewer risks of failure, and helpful support. On the other hand, higher cost and an inflexible system must be weighed carefully. Consider your goals and resources to see if a franchise would be a good fit for your plan.
