Many people have the dream of starting their own business. And there is no doubt that being your own boss has many advantages.
But it’s difficult to build up a brand and attract customers who are willing to spend their money with you. So the solution could be to buy a franchise business instead.
All the hard work has already been done, and there will be ready customers who are familiar with the brand and won’t need convincing.
So is this the right solution for you? Let’s look at the pros and cons of a franchise business to give you all the information you need to make a decision.
What Exactly Is A Franchise?
Before we delve into the benefits and drawbacks, let’s understand what exactly a franchise business is.
Basically, you buy the right, in form of a licence, to sell goods or services under another business’s name and trademark using their business model.
This means you can open, let’s say, a McDonald’s and sell their burgers in return for a one-off licence fee. Of course, McDonald’s will also charge you other regular fees and ask for a percentage of your sales.
After all, they want to get something out of the deal. In return, you can tap into their customer base and have a successful business from the get-go.
Sounds good, right? But as with everything, there are pros and cons, which you should be aware of before buying a franchise.
The Pros And Cons Of A Franchise Business
Before you can be sure that buying a franchise is the right thing for you, you have to know what you are getting yourself into.
So let’s get down to it…
The Benefits Of Owning A Franchise
We will start with the positives of a franchise business. And there are many advantages, it has to be said.
Established Brand
One of the most difficult things when you start your own business is to build a brand and become established. You want customers to know who you are and what you do or sell.
Brand recognition is key if you want to have a successful business. Google is a great example. If someone has a question, they will go on the internet and “google” it. Most of us won’t even consider any of the other search engines, such as Bing.
It can take years to get to this kind of level, if you ever get there. Buying a franchise means you don’t have to worry about it.
You will be operating under an established brand that people already know and trust. If you open a Costa Coffee franchise in your hometown, people will come and buy their coffee without you having to do much.
The fact that you’re a Costa Coffee will be enough. That’s a huge benefit, because it means you can focus on running your business and giving your customers the best experience possible.
Ready-Made Customer Base
Because you’re trading under an established brand, you have a ready-made customer base. (Salar and Salar, 2014) You don’t have to go out and look for them and convince them to come to you instead of a competitor.
Getting customers is really hard if you are a new business. First you have to find them so that you can tell them that you exist. That’s easier if you have a physical shop than if you’re an online business.
Then you have to convince them that you’ve got what they want and that they can trust you. It’s not easy to make people part with their hard-earned cash.
If you open a Pizza Hut in a part of a city that doesn’t have one, people will flock to you. They don’t need to know anything about you or your offering, because they already know what you will sell.
And they will know what it will taste like and they’ll like it, because they have eaten at Pizza Hut before and liked it.
A loyal customer base is a godsend for any small business.
Support From Franchise Owner
When you buy a franchise, you don’t just buy the licence, but also support in different areas. It’s in the franchisor’s interest that you do well, so they will provide you with training in regards to how to run your business, accounting, marketing, etc.
So even if you have no prior experience of running a business, you get support to help you succeed. The kind of support you’ll get will differ depending on the franchise owner.
For example, if you were to buy a McDonald’s franchise, you’d get access to an experienced consultant who’ll help you set up your business. They have a training course that will explain all of the roles required, so that you can hire the right staff and anything else you’ll need to know.
Not bad, eh?
You won’t get that if you build your business from scratch. You’d have to learn it all by yourself, which takes time and can be difficult.
So, especially if you have no experience at all, the franchise model could be a good starting point to becoming your own boss.
Benefit From Marketing Campaigns Run By Franchisor
Marketing is a vital part of any business, as it’s your tool to convince people to buy from you. Any business owner will have to have a marketing strategy.
And while you will be responsible for marketing your franchise business, you will get a lot of support. Did you ever notice that all the posters and menus in a McDonald’s are the same?
That’s because they have been created by the parent company. But that’s not all. Every time McDonald’s runs a TV ad, you, as one of their franchisees, benefit. And you won’t have to pay a thing for it.
Most franchisors will have ready-made marketing materials you can use, for a cost, of course. But because you don’t have to pay for the designs, you will save money.
Established Suppliers
One hallmark of a franchise is that everything is the same. If you eat a Burger King Whopper in Manchester and two weeks later in Birmingham, both burgers will taste and look the same.
That’s what customers will expect. To achieve this, franchisors will provide their franchisees with a list of suppliers they can use. This sort of quality control is vital if the customer experience is to be the same no matter which outlet they visit.
The benefit for you as the franchisee is that you don’t have to worry about finding a supplier and building up a relationship with them. Supplier relationships are already well established.
And this will include pretty much everything you could need for your business, including food, drinks, cups, plates, packaging, stationery, uniforms, etc.
More And Better Finance Options
Obtaining financing to start a business is one of the most difficult parts of becoming your own boss. (Fernandez 2021) Especially when it comes to external finance, such as loans or attracting investors.
Banks are more likely to lend you money if they believe that your business will be successful, because their risk will be smaller. And as franchises have a higher success rate than other businesses, lenders are more willing to lend money for a franchise business.
Although there aren’t specific statistics available, it’s generally considered that investors are more likely to invest in a franchise. That’s because they are investing in an existing brand with a proven business model, which means there is less risk involved.
All this means that it’s easier to get financing for a franchise opportunity.
Better Chances Of Success
Analysis by Experian found that 50% of UK businesses fail in the first three years. That’s quite a huge amount.
Your chances of succeeding are better if you have opened a franchise, as the franchise model has lower failure rates than other business types, according to research. (Othman et al., 2023)
And if you look at the above benefits, it’s easy to see why that is. Benefiting from trading under an established brand with an existing customer base, combined with support from the franchise owner, will increase your chances of success.
A lot of the hard work is already done for you, and you can reap the benefits.
The Drawbacks Of Being A Franchise Owner
But before you go off and look for a franchise to purchase, let’s look at the downsides.
Very Limited Control
Being your own boss means you do what you want, when you want, and how you want it, right? Well, not with a franchise.
When looking at the pros and cons of a franchise, this is probably the one that most people need to consider the most.
The franchise agreement you sign when you buy the licence will, among other things, set out how you have to run your business.
This could be as restrictive as stipulating opening hours, the layout of your premises, and how it’s decorated, where your business is, how you have to market and advertise it, and under which conditions you can sell your business.
So if you are thinking about starting your own business because you want to be in control over what direction your company takes, a franchise is probably not for you.
If you want to try something new, you will have to seek permission from the franchisor and be prepared that you might not get it.
Even though you own the business and bear full responsibility for its success or failure, in terms of control, you are more like a store manager with only limited control.
Things like growing your business, reacting to market changes, and innovating might not be possible.
The fact that you have a ready-made business model and business plan to follow might attract you, but the limited control is what you have to accept in return.
Upfront And Ongoing Costs
The initial investment for a franchise can be quite high. First, you have to pay the initial franchise fee, which is the purchase of the licence to operate a business under a brand’s trademark and business model.
Depending on the franchise, this can cost you a few thousand pounds to a few hundred thousand pounds, according to What Franchise. The bigger and more established the brand, the more it will cost to buy its franchise.
But that’s not all. After the upfront investment, you have to pay service charges that will cover things like advertising, training, and royalty fees. These fees will be part of the agreement, so you will know in advance what ongoing costs you need to keep in mind.
Then there is the profit share. The franchisor will take a share of any profit you make, normally a certain percentage. Again, this will be set out in the agreement you sign.
Of course, on top of all these costs you have the normal running costs all businesses have to pay, such as wages, taxes, rent, insurance, etc.
Suddenly, franchise ownership doesn’t sound that good anymore…
Restricted Choice Of Suppliers
One benefit of franchising we mentioned earlier is that supplier relationships are already established. However, this can also be a downside.
As a franchise business, you will be restricted to which suppliers and distributors you can use. This means you can’t shop around to reduce your costs.
Whether you are looking to buy food, uniforms for your staff, or certain equipment, the chances are you have to use approved suppliers.
If things go wrong, like supply chain issues, you might find yourself in a tight spot.
Franchisor-Franchisee Relationship Can Be Tricky
The many restrictions and lack of control over how you run your business cause a power imbalance between you and the franchisor.
You are bound by the franchise agreement, so it’s vital to keep a good relationship with the franchisor. If you want to run the business your way, this can cause friction and conflicts, which can sour the whole experience.
A study found that many people entering the franchise business struggle with the tension between what they thought running a business is like and what the reality of being a franchisee is.
Unless they were able to combine both and created a new business owner identity, they were likely to exit franchising early. (Jeremiah et al., 2021)
It’s important that you’re clear about what it means to be a franchisee and how this fits in with what you are expecting.
Dependent On Brand’s Success
One of the benefits of opening a franchise is that you can benefit from the existing brand reputation. But that can also be a downside.
If the brand goes into administration, you’ll lose your business. If they do something that harms their reputation, yours is automatically also harmed.
And there isn’t anything you can do either. While you might see yourself as an independent business, your customers only see the brand name.
It’s not uncommon that people decide to boycott brands if they are seen to be acting unethical in some way.
Although studies show that the initial hot boycotting phase is followed by a cool down, when customers return. (Lasarov et al., 2024)
Despite this, a boycott of your business, even if it’s just for a few weeks or months, could have a huge financial impact. And there’s nothing you can do.
It’s just one of the risks you take when buying a franchised business.
Selling Your Business Can Be More Difficult
Selling a business can be a great way to get cash for a new venture or to get a retirement fund. However, selling a franchise isn’t as easy as selling an independent business.
Like you were bound by the franchise agreement, so will the new owner be. And the franchisor has a say in who you sell to as well. If they decide your chosen vendor doesn’t fit with their criteria, they could block the sale.
As you might imagine, this can make it more difficult to sell the business and take longer to find the right buyer.
Of course, that doesn’t mean that you won’t find a buyer, but be prepared for it to be more challenging than if you were to sell your independent business, where you would have full control.
High Level Of Monitoring
As a franchisee, you are subject to high-level monitoring by your franchisor. To ensure that customers get the experience the franchise owner wants, they will regularly check what you do.
This could be by an inspection of your premises, by sending a mystery shopper to you to see if your services and products are up to scratch, and by inspecting your finances.
The reason for this high level of monitoring is obvious: they want to make sure that you aren’t hurting their brand and that customers get the same experience as in any of their other outlets.
But that doesn’t make it any easier for you as the franchisee. You have to be prepared for someone to always look over your shoulder to check what you’re doing. And this isn’t what most people would consider being their own boss.
Competition From Other Franchise Holders In Your Area
Competition is part of the business landscape. Not just that, it’s vital to further growth, innovation, and efficiency in any sector. (Asadzade 2024)
But if you have a franchise, it’s more difficult to get the edge over your competition, especially if it comes from other franchise businesses in your area from the same brand.
It’s not unheard of to have, let’s say, two or three McDonald’s restaurants in a city centre. How do you get people to come to yours rather than your competitors?
If you had an independent fast food restaurant, you could change your menu to offer something your competitors don’t. Or you could change something in the way you offer your products to give customers a different experience from your competition.
But with a franchise, this isn’t possible. After all, the whole point of it is that customers get exactly the same products and services in any franchise in the country.
This means your options are very limited to convince people to come to you, which can make it more difficult to grow your business and thrive.
Conclusion – Should You Buy A Franchise Business?
Now that we have discussed the pros and cons of a franchise, let’s see if it’s a good idea to get one. As you might have guessed, this will entirely depend on your circumstances, requirements, and expectations.
There’re quite a few big benefits, such as already having a ready-made customer base and a proven business model. And even if you have no experience, you can expect to get support and training from the franchisor.
However, you have to counterbalance these with the negatives, the main one being that you only have limited control over how you run your business.
You need to be very clear about what you expect from running a business. Why do you want to do it? A franchise is great if you want to gain some experience in running a business without the many risks.
Of course, there are still risks, but a lot of the hard work is already done for you, such as getting the model right, getting the brand built up, and getting a customer base.
Keep in mind though that going down this route means you have to sign a franchise agreement, so it’s advisable to get legal advice before you sign anything.
If you are after the freedom to do what you want in terms of direction, strategy, and vision, a franchise might not be for you.
In this case, you are better off considering going it alone, as you might struggle with the lack of control and the high-level monitoring.
