Is Starting A Franchise Business The Right Business Choice For You?

Once upon a time, you were reading Robert Kiyosaki's “Rich Dad, Poor Dad”. At that moment, you realized that if you wanted to become financially independent, you would have to start your own business.

You came up with a great plan and put it into action. It becomes more successful than you could ever imagine. You become successful within your community and your wealth begins to grow. However, it seems to top out at some point. Could this be due to the competitive franchises that are all around you? Could your business have more growth potential if you decided to buy into a franchise? Let’s just say that it’s a possibility.

But what is a franchise business? This is simply a method that a company can use to easily distribute any of its services or products via retail outlets which are owned by separate, third party operators. These third party operators conduct their business by using the franchiser’s trademarked goods, marketing methods and services as well as the name recognition of the mother company. It's a great way to expand operations and grow geographically. But is it the right way to go? To know the answer, let's take a look at the pros and cons to starting a franchise business.

First, let’s go over the advantages. Suppose that you were the franchiser…The franchisees will be responsible for putting up capital, management and, of course, employees for the target location. This reduces your financial commitment. You, as the franchiser, will only have to grant the rights to have the franchisee distribute your trademarks, products or techniques. Because the franchisees also become owners, their motivation to succeed would most likely be greater than that of an employee of the franchiser. This is a given since they also get a share of the business profits.

Every new location that's set up immediately earns a profit for the franchiser. The franchisee needs to pay you what is called a franchise fee. Aside from that, the franchiser would receive a continuing royalty, which can be anywhere from 9% to 10% of the gross income of the franchisee. With that being said, the franchiser has to make sure that the proposed location would be a good, profitable venue with high traffic and accessibility. Franchising your business can also open up opportunities for international expansion.

Sounds good so far, right? Not quite. There are still some disadvantages to becoming a franchise business.

You have less direct control over the network. Nevertheless, you still have enough control to be able to terminate a contract if the franchisee does not follow your agreements.

There may be times when the franchisee would resent the continued royalty payments. Some would even think of ways to terminate a franchise contract. The might even try to violate the terms of the franchise agreements. These are all serious issues that could arise and you should be aware and prepared, just in case.

Another disadvantage is when a franchisee fails to uphold the quality control methodology you have implemented in your business. This is an issue that can directly affect your company's image. It may even cause a customer or even a member of the personnel to become injured. The franchisee can be sued and, as we are all aware, no one likes a lawsuit. Unfortunately, when that happens, the franchiser gets named in the litigation as well. Although, if the franchiser has not detailed how the franchisee should act in the particular area affected, the franchiser has usually been successful in defending such lawsuits.

In other words, you should definitely think long and hard about deciding to franchise your business. Weigh the pros and cons carefully. And, if you play your cards right, the right choice can surely boost your business.

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Warning: This article is for educational and entertainment purposes only! Never implement, use, or follow the contents of this article without consulting a professional.

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