Written by Efranchisesale Staff Wednesday, 05 August 2015 00:00
Before jumping into the world of franchising, most would-be business owners want to know exactly what they’re getting into. You may already be perusing the franchises for sale directories, but are you really ready for the challenges of franchising?
I will be covering the benefits of franchise ownership in a separate article, but first let’s examine the challenges. Many of these challenges may not exist in all franchise systems, but they offer a good starting point for a frank discussion with your potential franchisor.
Limited Buying Options
Many franchisors expect their franchisees to buy supplies only from their approved list of vendors. This limits the flexibility of a business owner, especially when these suppliers’ costs are much higher and it cuts into profits.
Paying royalties back to the franchisor can really cut into the profit. Find out how much you will be expected to pay as a percentage of gross profits before deciding on a franchise system.
Fees & Start Up Costs
With all the startup costs and franchising fees, sometimes it can be more costly to open a franchise than it would for a start-up business, so be careful to thoroughly analyze the numbers.
In addition to royalties, many franchisors require marketing fees be paid to cover advertising costs. Find out if this will be required of you too.
Long-term contracts can often kill the deal when it comes to franchising, especially if you are not comfortable with a 10-year contract. What will happen if your franchise is unsuccessful or not what you expected?
With this said, the advantages of buying a franchise are still numerous.
One of the reasons franchises are so lucrative is that you still get the benefit of an existing customer base and brand awareness - to key aspects of a business that are incredibly difficult to obtain independently and take a long time to acquire.
The importance is that you as a business owner recognize whether the costs will outweigh the benefits. If you are not prepared for the financial impact of buying a franchise, then it may not be the right business for you.
Working with a franchises directory featuring for sale by owner will ensure you are speaking directly with the franchisor, and not a greedy business broker.
You may already be very excited about the prospect of franchising, but before you sign anything, take some time to dig deep and learn as much as you can about the challenges of buying a franchise.