Franchise Business Pros and Cons
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For many entrepreneurs hoping to launch a business, buying in to a franchise business seems like the best ticket. After all, it seems like nearly every new business that opens locally is a franchise of some kind. But is going the franchise route really a better choice than starting a business from scratch?
Franchised businesses are growing at a breakneck pace. Nearly 400,000 franchised businesses employ 9.8 million people with a payroll of $230 billion. Curves, for example, a network of franchised women-only fitness centers, grew nearly 38 percent in 2004 alone.
The key to making the right choice between a franchise or startup business is research . You must investigate before you invest.
First off, consider your appetite for risk. If your entrepreneurial fires are burning, you hanker to strike out on your own to test your own ideas, and you thrive on risk, then starting a business of your own may be a better choice. A franchise business lowers the risk because someone else has already pioneered the concept, tested the ideas, made the inevitable mistakes and found out what works and what doesn’t.
The result is a tried-and-true formula that is replicated no matter what the location. When you buy one of these “business format franchises” you get a packaged deal that’s ready to plug in and go. If buying into an already successful recipe appeals, and the lower risk-lower reward realities are acceptable, then franchising may be right for you.
As you investigate a franchise business, explore these issues:
- Required experience, hours and personal commitment necessary to run the franchise business
- Background of the franchisor, its track record and how other franchisees in the system are doing
- Cost to buy into the franchise, how much you’ll pay for the continuing right to operate the business, and options for financing your investment
- Products or services you are required to buy from the franchisor
- Terms and conditions for getting out, and how many franchisees have left the system during the past few years
- Detailed financial information on how current franchisees are doing
- Fun factor – to have the best chance at success, choose a type of franchise business that excites you
Investigate the franchise field and find a franchise business that’s right for you:
The International Franchise Association (IFA), a membership organization of franchisors, franchisees and suppliers, offers helpful info on how franchising works. Search their database of over 800 franchise opportunities with Web and e-mail links. You’ll find good step-by-step guidance for beginners, with key questions to ask, ABCs of franchising courses, lower-cost franchises and home-based franchise opportunities.
Use our no-commitment franchise selector to target your best options in franchising. Browse franchise profiles, research franchise opportunities and get fresh info on franchise events. Search by industry, investment range or alphabetical listings.
To learn more about franchising, listen to Stuart Mathis, president of The UPS Store, ranked #5 in the top 500 list above, on StartupNation Radio. We discuss who franchising is for, how to do it right, and what to look for in a franchisor.