Advantages and disadvantages of buying a franchise

There are advantages and disadvantages in buying a franchise rather than buying or starting an independent business. Some of these are listed here.

Advantages:

Note: not all franchise systems will include these factors listed below.

  • association with a well established brand, reputation and product or service;
  • assistance with site selection, lease negotiation, site development, builders and shop fitters;
  • assistance with outlet design and equipment purchasing;
  • initial management training and continuing management assistance;
  • access to group/national market research, along with advertising and merchandising assistance;
  • access to established standard procedures, operating manuals and stock control systems;
  • assistance in securing finance and sometimes financial assistance in establishing the business;
  • access to financing packages which may be more attractive and easier to access than for non franchised businesses; and
  • access to established financial systems and checks which can provide early warning signals to highlight trouble spots.

Disadvantages:

  • less autonomy in some business decisions (franchisees generally have to operate the business according to the franchisor's operations manual);
  • restricted territory in which you may operate and/or promote your business;
  • ongoing payment of fees to the franchisor;
  • less control if you decide to sell your franchise business as there will be a set of procedures for you to follow, including getting the franchisor's approval of the buyer;
  • if you sell the business you will usually have to pay a fee to the franchisor as outlined in the franchise agreement;
  • restraint of trade provisions on the sale or termination of the franchise that may be more onerous than required if a non franchised business is sold;
  • at the end of the franchise term, the franchisor is not obliged to renew the franchise, in which case the business and its goodwill revert to the franchisor.

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