Thinkstock Images/Stockbyte/Getty Images
If you're an aspiring entrepreneur interested in the hospitality industry, you might consider purchasing a hotel franchise. Since franchises come with a plan for running the business along with support, purchasing one can be a good way to get started in business ownership. However, you should be aware of the downsides in terms of costs, less control, risk and contractual obligations. Consider both the advantages and disadvantages of hotel ownership as a franchisee to decide if it's right for you.
Startup Costs and Franchise Fees
Expensive startup costs and ongoing fees are some franchise disadvantages that can make it harder for you to get started as a business owner as well as to operate profitably.
The initial investment for top hotel chains can run into the hundreds of thousands to millions of dollars. The initial investment includes the initial franchise fee and all other resources – like the building, staff and supplies – that are necessary to open your doors. This can cost a lot more than starting a small bed and breakfast or independent hotel, so seeking multiple sources of financing will likely be necessary.
Even after you open your doors, you can expect to pay several types of fees for as long as you own the hotel franchise. These can include royalties based on your monthly revenue along with fees for marketing and advertising. Your franchise contract will specify these fees for you.
Less Control Over Your Business
Another one of the disadvantages of chain hotels when it comes to being a franchisee is that you give up a lot of control over how, when or even where you operate. From restrictions on how many hotel franchises can operate in a certain geographic region to what kind of food you serve in your hotel's restaurants, you'll need to follow all the franchisor's rules to avoid breaking your contract. For example, you might find that you can only purchase supplies from a specific supplier or that you have to position your hotel room furniture in a set way.
Franchise ownership has less room for creativity since you'll have to maintain the chain's brand image. This means having to use the chain's slogans, colors and any logos rather than your own.
Locked Into a Contract
Along with having less flexibility in running the hotel, you are also locked into the franchise agreement, often for a term of several years. If you want out, your contract's termination clause will explain under what conditions you can exit the agreement. For example, it might allow you to exit if the franchisor does something fraudulent or does not provide you with sufficient training.
At the same time, the contract notes under which conditions the franchisor can end the contract with you as a franchise owner. For example, if you can't afford to pay your fees, or if you try to operate outside the hotel chain's rules, you can end up losing your business.
Not Free of Risk
While buying a franchise may be less risky than starting up a new business on your own, this option does not mean that your business will be a guaranteed success. While your business skills will have an impact on how well your hotel performs, the reputation of the franchisor does as well.
If the hotel chain is known for poor customer service in general, your franchise may have trouble getting as many guests as you want, even if you personally seek to provide excellent customer service. This means you'll want to research the chain and read reviews from other franchisees when making your decision.
There is also the risk that your franchisor will not provide enough support to help you succeed. While major chains like Choice Hotels provide ongoing support and training to franchisees to help them build their revenue and optimize operations, some others might care more about collecting fees from you than seeing you do well.
Exploring Franchise Hotel Advantages
While there are hotel franchise disadvantages, there is still a lot to gain as a franchise owner. If you purchase a franchise of a top-performing hotel chain that offers great support to franchisees and has a great reputation, you can see good profits. Although you do have less control over the business, this can also mean less stress since you'll already have a plan for running things. Lastly, you may even find it easier to get financing for your franchise than for a brand-new, independent business.
- Investopedia: 5 Leading Hotel Companies
- Entrepreneur: Want to Buy a Hotel Franchise? Here's What Some of the Big Brands Will Cost You
- LiveCareer: Franchising Pros and Cons: Is Franchising Right for You?
- Lumen: Franchising
- Queensland Government: Advantages and Disadvantages of Buying a Franchise
- Choice Hotels: Home
- Vethan Law Firm, P.C.: Terminating a Franchise Agreement: How to Get out of a Franchise Business
- Forbes: The Pros And Cons Of Buying A Franchise
- Thomas S. Dicke. "Franchising in America: The Development of a Business Method, 1840-1980," Pages 12-13. UNC Press Books, 1992.
- Thomas S. Dicke. "Franchising in America: The Development of a Business Method, 1840-1980," Page 119. UNC Press Books, 1992.
- International Franchise Association. "Franchise Business Economic Outlook." Accessed Sep. 20, 2020.
- Federal Trade Commission. "Franchise Rule Compliance Guide," Pages i, 24-119. Accessed Sep. 20, 2020.
- International Franchise Association. "Royalty Fee Requirement Definitions," Page 1. Accessed Sep. 20, 2020.
- McDonald's. "Franchising FAQs." Accessed Sep. 20, 2020.
- U.S. Bureau of Labor Statistics. "Table 7. Survival of private sector establishments by opening year." Accessed Sep. 20, 2020.
Ashley Donohoe started writing professionally about business topics in 2010. Having experience running all aspects of her small business, she is knowledgeable about the daily issues and decisions that business owners face. She also has earned a Master of Business Administration degree with a leadership and strategy concentration from Western Governors University along with a bookkeeping certification. Some other places featuring her business writing include JobHero, LoveToKnow, PocketSense, Chron and Study.com.