Advantages & Disadvantages of Owning a Franchise

When considering life as an entrepreneur, it is important to understand the definitions of

a franchise, business opportunity and a start-up business. There are, of course,
advantages and disadvantages to each style of business. In this article we will discuss
the advantages and disadvantages of owning a franchise.

FRANCHISE:
A franchise is a right granted to an individual or group to market a company's goods or
services within a certain territory or location. The franchisor (the company owner) sells
the rights to the franchisee and then typically receives a fee for ongoing support,
therefore having a vested interest in the success of each franchise. 

Franchising began back in the 1850's when Isaac Singer invented the sewing machine.
In order to distribute his machines outside of his geographical area, and also provide
training to customers on the use of the machines, Singer began selling licenses to
entrepreneurs in different parts of the country. Today many such franchise opportunities
are advertised via the Web and other media. Examples of franchises
include Carvel, Tutoring Club and Liberty Tax Service.

Advantages:

 There is a higher likelihood of success since a proven business formula is in

place. The products, services, and business operations have already been
established.
 Bankers usually look at successful franchise chains as having a lower risk of
repayment default and are more likely to loan money based on that premise.
 The corporate image and brand awareness is already recognized. Consumers
are generally more comfortable purchasing items they are familiar with and working
with companies they know and trust.
 Franchise companies usually provide extensive training and support to their
franchisees in effort to help them succeed.
 Many times products and services are advertised at a local and national level by
the main franchise companies. This practice helps boost sales for all franchisees, but
individual franchisees don't absorb the cost.

Disadvantages:

 Franchises can be costly to implement. Also, many franchises charge ongoing

royalties cutting into the profits of franchisees.
 Franchisors usually require franchisees to follow their operations manual to a tee
in order to ensure consistency. This limits any creativity on the part of the franchisee.
 Franchisees must be very good at following directions in order to maintain the
image and level of service already established. If the franchisee is not capable of
running a quality business or does not have proper funding, this could curtail success.
Sometimes franchisors may be lax on their commitment to support the franchisee. Also,
they may make poor decisions that would have an ill effect on the franchisee. Therefore,
it is important to research any franchise concept thoroughly before signing any
agreements.

Advantages and disadvantages of

buying a franchise
In a franchise business, the franchisor provides a developed way of doing business,
ongoing guidance, systems and assistance in return for periodic payment of fees and/or
purchases.

Buying a franchise can be a viable alternative to starting your own business. Listed
below are some advantages and disadvantages of buying a franchise.

Advantages of buying a franchise

 Franchises offer the independence of small business ownership supported by the
benefits of a big business network.
 You don't necessarily need business experience to run a franchise. Franchisors
usually provide the training you need to operate their business model.
 Franchises have a higher rate of success than start-up businesses.
 You may find it easier to secure finance for a franchise. It may cost less to buy a
franchise than start your own business of the same type.
 Franchises often have an established reputation and image, proven management
and work practices, access to national advertising and ongoing support.

Disadvantages of buying a franchise

 Buying a franchise means entering into a formal agreement with your franchisor.
 Franchise agreements dictate how you run the business, so there may be little
room for creativity.
 There are usually restrictions on where you operate, the products you sell and
the suppliers you use.
 Bad performances by other franchisees may affect your franchise's reputation.
 Buying a franchise means ongoing sharing of profit with the franchisor.
 Franchisors do not have to renew an agreement at the end of the franchise term.
Franchising is seen by many as a simple way to go into business for the first time. But
franchising is no guarantee of success and the same principles of good management -
such as informed decision-making, hard work, time management, having enough
money and serving your customers well - still apply.

Be cautious when buying into a franchise if you have to develop the market and the
brand in your designated area. Make sure your investment generates healthy returns
and a capital gain when you sell

Advantages and Disadvantages of a Start-Up Business

What is a start-up business? A business is considered a start-up if an entrepreneur
begins a business based on a unique idea and takes it all the way from the planning
stage to actually running the business. The business is usually thought of as still in the
start-up stage until it begins to produce sufficient revenue or sales to cover the cost of
supplies and operating costs. 

Here are the advantages and disadvantages of a start-up business.

Advantages:

 Creativity can play a big part in starting and operating the business.
 There are no predetermined formulas or rules to follow; much less restrictive than
a franchise or business opportunity purchase.
 The owner is in control of all aspects of the business, including the location and
what the operation is to look like.
 The entrepreneur may draw from previous job experience, skills, and passion in
establishing the business.

Disadvantages:

 Start-up businesses are typically more costly and risky since there is no proven
formula.
 In order to obtain capital to fund the business, a lengthy detailed business plan
must be put together.
 All of the details of starting the business, including licenses, marketing, naming
the business, finding product sources, etc. are the responsibility of the owne r