How to Overcome
the Disadvantage of a Franchise
With the benefits exceeding the disadvantage of a franchise, franchising became a new business system during the 1940's and 50's. The spectrum of business opportunities back then entailed big business corporations on one end with "mom-and-pop" stores on the other; and very little in between. Building a huge corporation back then was a huge task, well outside the league of any average person (as it is still today). Starting a smaller business was much easier, but extremely risky as small businesses had a high failure rate (and still do today).
Franchises broke the traditional mold by developing not just a business, but an entire business system. The franchisor is the corporation or parent company. The franchisee is the individual buying into the system. As a franchisee, despite the disadvantage of a franchise, does have access to some huge benefits.
ADVANTAGES OF A FRANCHISE:
- Tried and Proven Business System. By definition, a franchise wouldn't be a franchise a great deal of success had not already been attained. The things you forgot about or do not pay attention to will be the things that will cause you to crash and burn. The system that a franchise provides helps to prevent those oversights.
- Licensed Trademark / Brand Recognition. With an established system, this is what you're really buying with a franchise: instant credibility and recognition. With a good location, a franchise will bring almost instant business by just opening the doors because people will already be familiar with your establishment.
- Easier to get a loan. Banks don't lend money to people without systems. Banks recognize the importance of systems and how starting with a good system will lower their risk.
- Training program. Most all franchises will actually require you to attend a training program of some sort. Most of them have established institutions that you would have to attend and programs that last as long as 2 months. The franchisor will teach you all of the details and knowledge required to successfully run the business.
- Operations manual. Every detail from marketing to employee management to re-supply and procurement are covered. Specifications, quality standards, and blueprints are all supplied.
- Support. The franchisor will provide ongoing assistance in systems and operations.
- Psychology. Starting a franchise can help eliminate a lot of the doubt, anxiety, and apprehension that all business owners face in the beginning.
Of course, as with anything, all of the above come with a cost.
DISADVANTAGE OF A FRANCHISE:
- Extremely Expensive. It can cost up to $1 million to start a well-known franchise (like McDonalds or Pizza Hut). A smaller franchise (like Krispy Kreme) will still require about $100,000 to get started. That price tag is definitely the biggest disadvantage of a franchise.
- Restrictive. As a franchisee, you must conform to the operations manual and the franchisor's system to the letter. If you model yourself as someone who likes to do their own thing, this disadvantage of a franchise will probably not make it a good match for you. There have been many tragic courtroom fights when a franchisee decides to do it their own way.
- Shared Revenue. Not all the money you make will be yours. The franchisor will take a cut out of all revenues you generate, whether you're in profit or not.
- Full-Time Requirement. Generally, a disadvantage of a franchise is you can't realistically work it on a part-time basis.
- Requires a Manager. As a true business owner you should be able to walk away from the business and it shouldn't fall apart. To do that you will have to run it yourself or make sure you hire a good manager. With a franchise, it can become easy to fall into what we call the "business trap", where you"re business runs you instead of you running your business.
- Mandatory Hours. You will have very little flexibility or time freedom as to when to run your business. Chick-Fil-A, as an example, does not allow franchisees to work on Sundays.
- Standard Business Headaches. You will still have to deal with standard business hassles like employee management, licensing, accounting, and inventory management. We list this as a disadvantage because there are several other types of business systems that completely eliminate these problems.
As far as an investment vehicle or as a method of generating residual income, a franchise can be fairly reliable and secure with little risk. However, most business owners want a business not just to achieve financial freedom. They want personal freedom and independence as well. A highly restrictive nature is the biggest disadvantage of a franchise for the person with an entrepreneurial spirit.
There are other business systems that offer the same advantages while almost completely eliminating the disadvantage of a franchise. The rest of this site is dedicated to guiding your research to find a legitimate and reputable home business opportunity.
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