When considering new business opportunities, many entrepreneurs explore the possibilities of franchise ownership. Franchises offer many built-in advantages to new business owners, such as an established business model and brand awareness among potential customers. However, franchise ownership is not without its drawbacks. Inexperienced business operators may find that franchise ownership is not as simple as it may appear. Despite the widespread success of many franchise operations, franchise owners are not guaranteed to make a profit.
Established Business Model
A major advantage to owning a franchise is that franchises are built on replicating a successful business model. New franchise owners can avoid much of the costly trial and error that goes with establishing a product or service line. The franchise owner also can take advantage of the franchise's established brand presence. For instance, a customer from New York will know exactly what to expect when walking into a McDonald's franchise in Texas.
The franchise owner can rely on support from the franchise's corporate office. The corporate office provides guidance on nearly all aspects of the business, from advertising and marketing to interior design and internal procedures. When an independent business owner runs into a problem, he or she often faces it alone. When the franchise owner encounters a problem, he or she can contact the corporate office or read through the franchise agreement to determine the recommended course of action.
A noticeable disadvantage for entrepreneurs in franchise ownership is the high cost of entry. Franchise fees, especially for popular franchises, can be very high. Fees can start at $1,000 and run to more than $200,000. These fees do not count the other expenses involved in a startup business, such as real estate, interior design or payroll. Also, when franchise operations make a profit, a sizable share of that profit goes to the corporate office, not the franchise operator.
Strict Operational Guidelines
The biggest problem that many entrepreneurs encounter in franchise ownership comes from the strict operational guidelines that corporate franchises place on their participants. Creative entrepreneurs may find these guidelines to be too restrictive and inefficient. Entrepreneurs may wish to address some of the flaws with the procedures the corporate office has installed. However, almost any change to the corporate directives on operating the franchise can be interpreted as a breach of the franchise agreement.