Starting an independent business on your own can be a scary thing. You have to find your location, build or renovate your building, create a business model, hire employees, finance your operations, and establish a customer base all on your own. 

Any one of these things can be scary and overwhelming, especially if you don’t have much in the way of prior business experience. Fortunately, there is an alternative that comes with built-in assistance to help you achieve the greatest possible success: franchising.

Buying a franchise gives you access to a lowered risk of failure, an established audience, better brand recognition, solid business models, and top-tier employees, suppliers, and support. 

Let’s take a closer look at just a few of these excellent advantages to buying a franchise and a few disadvantages you may want to consider before finalizing your investment.

Pros of Buying a Franchise

From enjoying lower risk factors to having built-in customer bases, support, and suppliers, franchises offer business owners many advantages independent businesses just can’t match. Let’s look at each of these to understand better how they can benefit you.

Franchises Have Lower Risk

The greatest advantage of purchasing a franchise is its significantly lower risk than many other business and investment options. This is because franchises come equipped with the support of a larger, established corporation that works to help you succeed. 

In fact, even banks recognize that franchises are lower risk because they’re far more likely to give out franchise business loans than independent business loans. This is because independent businesses do not have the same credit and success history as larger franchises.

Franchises Have Loyal Customers and Brand Recognition

Building a strong customer base is one of the hardest things a business can do. Fortunately, by buying a franchise, you don’t need to work nearly as hard to establish your brand recognition and audience. Instead, they come built-in.

You get to benefit from the existing marketing strategies, loyal customers, and even the employee pool of your parent company in some cases.

Franchises Have Access to Better Suppliers

When you join a franchise, you benefit not only from the customer base and marketing strategies but also from their supply chains. Franchises have spent years in their industries working to develop healthy relationships with quality suppliers. 

This means that you’ll have access to cheaper materials that are to the same standard other businesses may be paying twice or three times as much for.

Franchises Come with Built-In Support

Independent businesses can partner with other small businesses over the years to build up support systems amongst themselves. Still, franchises have a built-in support system to help them hit the ground running. 

Franchisees can assist with everything from site selection to designing and constructing their buildings, financing operations, training staff, and more through their parent company.

Franchising Allows You to Be Your Own Boss

When you own a franchise, you have many freedoms that other business owners might not have access to. These include creating your own schedule, working from home if possible, and having the freedom to build up your career exactly how you want to.

Cons of Buying a Franchise

As with anything, there are certain disadvantages to investing in a franchise as well. These can include high investment costs, royalty payments, loss of creative control, and more.

Franchise Investment Costs Can Be High

Franchise investment costs will always differ depending on the business you choose to open, but no matter which franchise you choose to invest in, more often than not, the initial investment fee will be costly. 

If you choose to open and operate a big-name franchise, you’re almost certain to face six-figure initial investment fees. However, if you choose to invest in a mid-range franchise, the fee may be much more manageable.

Franchises Come With Regular Royalty Payments

While you need to keep a close eye on the initial investment fee for your franchise, another number you should pay even closer attention to is the royalty fee.

A royalty fee is an annual or monthly percentage that a franchisee must pay their franchisor to maintain ownership of their franchise. This fee typically ranges from four to six percent of a franchise’s gross sales revenue and will reduce your profit potential overall.

Note that not every franchise will charge a royalty fee, but those that do may demand more than you’re willing to pay.

Franchises May Have Limited Creativity and Control

While small businesses have complete creative freedom and control over their operations, designs, training, and more, franchise owners have significantly less control. Franchise owners must maintain their parent franchise’s brand identity and model. They can’t add new products to their rosters, change their business models, revamp their uniforms, or do anything else without approval from the parent franchise.

Franchises Share Financial Information

Unlike independent business owners, Franchisees must also share their financial data with their franchisors. Franchisors are almost constantly gathering financial information from their individual franchisees so that they may improve their business model and audit any royalty payments that must be made to them.

Key Takeaways

Owning and operating a franchise can be a great business opportunity for you. There are so many advantages to investing in this business type that you may not find in opening an independent business. On the other hand, there are always disadvantages that you need to be aware of before you make a serious financial investment, so make sure to do your research well, so you’re not surprised by anything down the line.

For more information about franchises or to talk to one of our superstar agents about franchise insurance, reach out today!