Franchising 101: The Pros and Cons of Franchising Your Business

Are you unsure whether to franchise your business? Making the decision to start your own franchise is a tricky one, as the move comes with its advantages and disadvantages. Let’s take a look at the most important factors to bear in mind.

Here at Point Franchise, we know the franchise model holds a lot of potential for savvy entrepreneurs. Every day, we hear stories about successful franchisors and franchisees who have transformed their lives by joining the franchise sector. But we know there are drawbacks to the model, so we’ve listed some of the biggest pros and cons to help you decide whether to make the leap.

Pros of franchising your business

Franchising is on the up. 48,000 franchise units are currently in operation across the UK, staffed by 710,000 people. It’s clearly a popular business model – and for good reason.

It’s a cost-effective way to grow your business

By using the franchise model to expand your business, you can set up additional locations for a lower price. Franchisees cover the costs of setting up their own franchise unit and make regular ongoing payments as franchise fees and royalties. This means you don’t need to worry about funding new premises or recruiting staff to grow your business, but you’ll still benefit from the extra site.

You’ll have access to motivated talent

By becoming a franchisor, you’ll appoint a franchisee to run their own business as opposed to a manager to run another branch of yours. This means you increase the likelihood that the people who represent your brand are motivated and hardworking, as franchisees will have a vested interest in their business. As a result, franchising is an excellent way to find committed and enthusiastic people to run your branches in different locations.

It’s a low-risk form of expansion

The traditional method of expansion involves singlehandedly choosing, financing and running outlets in different locations. This would pose a significant financial risk, not only to your business, but also to your personal wellbeing.

In contrast, franchising can produce impressive returns for a much lower level of risk. It is the franchisee who invests their money in the new business location; all the franchisor needs to do is offer training and ongoing support. So, for a comparatively small investment, you can receive generous royalties from sales at other outlets.

You’ll be less likely to suffer during economic downturns

No business is completely immune to economic crises, but franchises are more likely to survive a recession than other businesses. There are a number of possible reasons why this is the case. Here are just a few of them:

• The franchise units are run by motivated, enthusiastic entrepreneurs
• Franchisors usually have lower overheads and debts than independent business owners
• Franchisees can rely on a proven business model and recognisable brand identity to attract customers

There’s scope to expand internationally

The franchise model simplifies the process of expanding a business across the UK, but it can also be used to open new branches globally. Although this might seem like a pipe dream at the start of your franchising journey, you will have the option to use the master franchising system to appoint franchisees to open multiple units in specific international markets.

Using the master franchise system, you can expand overseas quickly and simply. The franchisee uses your existing business model and adapts it for the local market, taking into account the country’s legal requirements and existing business customs, for example.

Cons of franchising your business

There are many reasons why you might become a franchisor rather than expand your business on your own – but here are a few factors you should consider before you do.

It costs time and money

If you want to have a profitable franchise business model, you must be prepared to work hard initially to develop it. In the preparation stages, you’ll need to put together a large amount of documentation, including training manuals, legal documents and marketing materials. Getting this first step right is vital to the success of your franchise in the long run.

You’re recruiting franchisees, not employees

When a franchisee invests in your business, they come with the aspiration of being their own boss and having a certain level of autonomy. Of course, they should be prepared to adhere to the standards set out in the franchise agreement, but you won’t have the same level of control over them as you would with an employee.

The key to making this relationship work is to consider your candidates’ personality traits during the selection process. If you think they would find it difficult to follow your business system or feel you could not collaborate well, you should think twice about approving their franchisee application.

It can limit creativity

It’s difficult to change or modernise your business once you’ve developed a franchise model and allowed franchisees to set up their own units. You’ll want to make sure your franchisees offer a consistent product or service across your entire franchise network. Any changes should be made to all the branches at the same time to make sure your business maintains the trust and respect of its customers.

If you come up with any new ideas, you’ll have to brief all your franchisees and wait until the majority accept them before they can be implemented. This can be time-consuming – and disappointing, if the proposal is rejected. It’s also a reason why prospective franchisees might be put off the franchise model. High levels of consistency often reduce opportunities for innovation and creativity for franchisees.

Franchising your business

No business model is without its disadvantages, and the franchise has a few. But many brilliant entrepreneurs across the world have found huge success with this low-risk, cost-effective and secure system.

Ultimately, the decision should come down to whether starting your own franchise would suit you and your business. If you think it would, we’ve got plenty of resources for you. Our website is full of tips and tricks to help you get the most out of your franchise journey. Click here to read our articles for franchisors.

Alice Tuffery, Point Franchise ©