There are now over 2,500 franchise systems in the United States. These franchisors have over half a million outlets and generate close to 40% of all retail sales. And the franchise industry continues to grow at an astounding rate.
With such a dominant position on the business scene, the possibility of acquiring a franchised business cannot be overlooked.
Assuming a reasonably solid franchised business is available in your field, then consider the advantages and disadvantages of what the franchised business will mean to you.
Advantages:
1). You reduce risk of failure. Operating under a “proven” business concept, the statistics show that the failure rate is down to approximately 2%. Compare this to the 50% failure rate for independent businesses and you understand why so many people do buy franchises.
2). You’ll receive training, assistance, supervision and a blueprint for operating the business. This is an important benefit for buyers lacking managerial experience or confidence.
3). You identify with a recognized name which should translate into more sales and a better profit than you could generate on your own.
Disadvantages:
1). Franchising is expensive with the better franchised businesses selling for up to several times the price of an independent business. And there are continuing royalty payments averaging 2-4% of sales. A franchise may be cost-justified if the costs can be counter-balanced by increased profits.
2). You may be more like an employee than “your own boss”. When you purchase a franchise it will be the company’s name, their layout, merchandising, pricing and policies. In other words, you will operate by the franchisor’s rules. While this can be viewed as an advantage for those receptive to support a franchise is not for the creative individual who wants to run the business their own way.