The Pros and Cons of Buying a New Franchise

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Franchising risk

Starting a franchise unit involves investing a lot of money, sometimes hundreds of thousands of pounds, so it’s vital you make the right choice. While some people might be hesitant about buying a new franchise business in an up and coming brand, there are plenty of perks to the decision…

When researching franchise opportunities, there are lots of elements to take into consideration: investment costs, training and support programmes and your own passion for the industry, to name a few. It’s important to weigh up each of these aspects and find the franchise offering the lowest level of risk to you.

As a result, a lot of people rule out up and coming franchises. We fear the unknown, and a new franchise system is an unproven venture with a limited track record. But immediately disregarding new businesses could be a mistake; there are plenty of good reasons to invest in a franchise on the up. 

The advantages of buying a new franchise

There’s room for fresh ideas

Established franchises usually have perfected systems and can become tired and lacklustre if the franchisor doesn’t work hard to invigorate energy into its processes. The franchisees and staff may have been there for years, and it can be difficult to stand out from the crowd as a new investor. You may have fantastic ideas for growth and development but, often, making your voice heard is no easy task. 

Emerging franchises offer a very different scenario. It’s likely the franchisor will still be finding their feet, and you could quickly prove yourself to be a valuable resource. A new franchise offers you the chance to share your ideas, and you may even shape the future of the business for years to come. 

Once a franchise system is perfected, it champions consistency, so new franchises are rare opportunities to offer up your own suggestions. 

There’s opportunity for business growth

After thorough research, you might find your perfect franchise investment opportunity, only to discover your local market and all the surrounding areas are already saturated with the brand’s units. Established franchises usually have fewer agreements up for grabs, which means even if you do secure an exclusive territory, you may not be able to expand beyond its borders. 

Alternatively, buying a new franchise opportunity should give you the choice of a broad range of locations and ample space to grow as your business flourishes. In fact, you should have the chance to claim the best territories before anyone else gets a look in. 

See our guide to master franchising to find out more about why you should consider securing additional territories. 

You could be working with exciting new products 

New franchises can offer a break from the norm. If a business was only recently launched, there’s a chance it’s taking advantage of brand-new or even groundbreaking products. Young franchises are often innovative and exciting, using new technologies and tapping into upcoming trends to deliver unique services, many of which are unfamiliar to the average consumer. 

If this is the case with the franchise you choose to join, you’ll face fewer competitors and the brand may even become the leader in its field. 

The disadvantages of buying a new franchise

The system may be imperfect 

Franchises are popular because they offer more security than independent businesses. They are proven to be functional, marketable and profitable. Usually, all the creases have been ironed out and investors can buy into them knowing their systems work well. A good franchise will operate like a well-oiled machine and demonstrate consistency across its territories. 

However, up and coming franchises can’t deliver the same guarantee. They may have successful flagship stores, but their franchise model is still new and unproven. It could take time to work out all the kinks, so investors must be prepared to face setbacks until the franchisor perfects the model. 

There may be limited brand awareness among consumers 

Established franchises benefit from having spent years — or even decades — building their public image. Customers already know and trust the brand. If you choose to join a household-name company, you’ll instantly reap the rewards of its brand recognition. 

Buying a new franchise agreement, on the other hand, may mean investing in a business without a solid reputation. People probably don’t know and love the brand just yet, and this could result in a slow start for your business. You may need to generate a higher level of working capital to keep your franchise unit ticking over until you can make a name for yourself

You may be investing in an unstable market

Large franchisors know their market. They’ve proven there’s demand for their products or services and they can be fairly confident their customers aren’t going anywhere. With years of sales records, an established franchisor knows their demographic and how to market to it. 

You can’t say the same for a new franchise. The franchisor may have grand plans for world domination, but they probably can’t prove the existence of their target market across geographical borders and throughout periods of economic crisis. 

Also, because many up-and-coming franchises operate in new industries, there’s a risk the demand for your product may flicker out as technologies advance and trends come and go. Young franchises can’t offer the long-term security of a business demonstrating that it can stand the test of time. 

Buying a new franchise unit

As you can see, there are many positives and negatives when it comes to investing in emerging franchises. Some entrepreneurs will be put off by the financial insecurity, while others will be tantalised by the open-ended opportunities of a new market. 

Ultimately, it’s down to you to weigh up the pros and cons and decide whether buying a new business opportunity is worth the risk. Always carry out as much research as possible so you can make an informed decision. 

Up and coming franchises can be risky investments, but they can also pay off hugely in the long run. You may even become a trend-setter, prompting envy from other local investors who wish they’d bagged your territory when it was still available. 

Find more information on becoming a franchisee and running a successful franchise unit with our range of handy business guides - or use the search box for specific queries.

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