Should You Buy a Franchise?

Posted on: April 1, 2019

We've all been there, at least once. You know what I mean; you frequent an establishment so often – we're talking several times a week (day?) – that the staff asks in jest if you're planning on buying the joint. Maybe you go in for the ambiance, or the great coffee, the fresh donuts, or perhaps it's that incredible chicken sandwich with the special sauce. Whatever it may be, you know you've said it to yourself – “I should own a place like this!” Well, if it’s a franchise, you can! But should you? That is the million-dollar question.

To many entrepreneurs, buying a franchise seems like a safe bet. It's got to be successful, right? In a perfect world, it would be. Unfortunately, this isn't a perfect world and it's very important that you know what you're getting into before you plow ahead. We've broken it down a bit so that you can get a quick glimpse of what you might expect with your purchase of a franchise.

Advantages of Buying a Franchise

  • Consumer recognition
  • A wealth of information about the entity
  • Proven business formula
  • Franchise training and resources
  • Minimal need for advertising
  • Financial assistance may be available

Disadvantages of Buying a Franchise

  • Upfront fees and ongoing royalty payments
  • Uniformity and contractual obligations
  • Over-saturation

A Look at the Upsides

Consumer recognition: First and foremost, everyone and his brother knows your brand name. No matter where you go, when you see the golden arches (for example), you know exactly what you'll get once you step through that door. There are no surprises here, and you’ll have an immediate clientele of people who want the product or service you’re offering.

Wealth of information: The corporate office of the franchise makes money from their franchisees, so of course they want you to join the family! As such, they will have plenty of information on the company and the product, and the many benefits of joining the family. Because they're obligated to by federal and state regulations, they'll talk to you about the upfront costs and fees, and the royalties they expect you to regularly send. They'll also give you all the help and training you need to ensure that your franchise meets corporate standards. If you want still more information, you can talk to other franchise owners and get their personal take on the process and learn from them what worked and what didn’t. Reaching out to a competitor isn't such a bad idea either, as they may have more insights than you'd expect.

Proven business formula: This may be one of the things that attracted you to the franchise in the first place. You liked the consistency, or continuity of the franchise, knowing that the business model has proven itself. There's a reason that most franchises run like a well-oiled machine; they've worked hard at it, through trial and error, perhaps a hundred times over. They know what works and what doesn't, and you won't be wasting your time or effort recreating the wheel.

Franchise training and resources: Some franchises will send out a staff member to help you get up and running, while others will bring you in to corporate headquarters for a lengthy training session. As the owner (and probably operator), you will be taught the machinations of your franchise, from A to Z.

Minimal advertising: One huge benefit is that the advertising for the franchise generally isn't your responsibility. The corporate office typically has a huge budget for national and regional advertising (i.e. commercials on TV, cable, radio, social media, as well as print ads, billboards, and coupons). Your signage for new products or special promotions will come from corporate directly, and all you need to do is ensure proper and timely placement.

Financial assistance: One resource that you might not be aware of is financial assistance. The company wants you to succeed, and sometimes that might mean some sort of upgrade that will cost you money. If a bank is not willing to help you (for whatever reason), your corporate office might, as they have a greater stake in your success. They also know what your outlook is, given your current and projected financials, and with their “we are family” mentality, they might open up their coffers to you.

What are the Downsides to Buying a Franchise?

Upfront fees and ongoing royalty payments: In order to use the franchise's name, you need to pay a fee to the franchisor (usually, a very hefty fee, with the price moving higher the more recognizable the brand name). Those fees are all up-front. Then, on an ongoing basis, there is usually a royalty you're required to dole out.

Uniformity and contractual obligations: If you like the sameness of a franchise, one being exactly like the other, then this will be a good thing. But if you have any thoughts of putting some individuality or uniqueness into your business, you'll be in for a disappointment. In most instances, you will be contractually obligated to follow the exacting standards laid out by the franchise headquarters. If you think responding to a consumer with “my pleasure” (rather than “you're welcome”) is more creepy than charming, tough luck. You agreed to it; read the fine print (always a great idea, anyway!).

Over-saturation: If you search on the internet for the name of your franchise and get more than dozen hits within a relatively small area, you're looking at possible over-saturation. And it's not just your own franchise family you need to be concerned about, but the competitors who offer a nearly identical product. Profits are made by selling a good, product or service that no one else has nearby. If it's all the same, what would compel a consumer to drive to your franchise fast food restaurant, when there are half a dozen burger places closer? Granted, you don't want to open a franchise in the boonies, but you also don't want to fight tooth and nail for the same consumer base.

Final Thoughts

While the pros do outnumber the cons, there are a lot of considerations to factor into your decision whether or not to buy a franchise. The most important thing is do your homework, and don't make a hasty decision. Visit the corporate website, ask for an information packet, talk to other franchise owners, ask your potential competition, even ask your friends for their thoughts. You are risking a heck of a lot of money to become the owner/operator of a franchise, so make sure it is an investment worth making.

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