It Can Be Costly
Buying a franchise can be a daunting experience. The barriers to entry tend to be high, with buy-ins ranging from several thousand dollars to more than a hundred thousand dollars. The up-front capital costs will vary depending on the franchise you choose, but expect to invest money at the outset to purchase the rights to become part of just about any franchise. While you’d need to invest money in any start-up, if you go it alone, there is the option to grow organically and at your own financial pace. When it’s a franchise, there are set fees, up-front investments, and capital reserve requirements you are obligated to meet right away.
Your Turf May Be Limited
When you buy into a franchise, you are generally given an existing territory in which to operate and market your product or services. You can’t reach out beyond your defined territory (other than by buying additional franchises, if allowed), even if you see a great opportunity. This can be very frustrating.
It is important to have a clear understanding of the extent of your territory, the rules of competition between fellow franchisees, and your franchisor’s level of commitment to limiting the number of potential new franchisees in or near your territory.
The Rules of Engagement Are Firm
With franchises, the rules are the rules, and there is little flexibility within the franchise structure. The franchisor has established a model for success and does not want you to change the formula. Therefore, creativity is often discouraged or even forbidden. Even if you have great ideas and an ability to see new opportunities, the franchisor is invested in building the brand their way, and they will not encourage individuality. If you view entrepreneurship as a way to set free your creativity in how you do things, where you do them, and how much money you can make, a franchise may not be right for you. Likewise, if you find that you like a particular market and a particular business model but don’t like the constraints of a franchise, you can always open a business in the same industry that competes with a franchise. You will have some initial disadvantages, which are outlined above, but you will also have some advantages, including flexibility in your approach, unlimited territory, and freedom from fees or commissions to the franchisor.
Your Income May Be Limited
In some cases there is a cap on how much money a single franchise can earn within a limited territory. Make sure that you know the full extent of your revenue potential (and any potential cap) before you invest in a franchise. You’ll want to make sure that the financial cap is consistent with the money you expect to make and that that number fits with your personal financial goals. For more information, interview current and past owners of the particular franchise that interests you.
There’s Competition at Your Back
Franchises often grow within competitive fields and new, hotter franchises can come along to compete with you. With limited flexibility to be creative due to franchise rules, dealing with outside competition can be challenging, unless, of course, you are the “new competition.”
Buying a franchise can be a daunting experience. The barriers to entry tend to be high, with buy-ins ranging from several thousand dollars to more than a hundred thousand dollars. The up-front capital costs will vary depending on the franchise you choose, but expect to invest money at the outset to purchase the rights to become part of just about any franchise. While you’d need to invest money in any start-up, if you go it alone, there is the option to grow organically and at your own financial pace. When it’s a franchise, there are set fees, up-front investments, and capital reserve requirements you are obligated to meet right away.
Your Turf May Be Limited
When you buy into a franchise, you are generally given an existing territory in which to operate and market your product or services. You can’t reach out beyond your defined territory (other than by buying additional franchises, if allowed), even if you see a great opportunity. This can be very frustrating.
It is important to have a clear understanding of the extent of your territory, the rules of competition between fellow franchisees, and your franchisor’s level of commitment to limiting the number of potential new franchisees in or near your territory.
The Rules of Engagement Are Firm
With franchises, the rules are the rules, and there is little flexibility within the franchise structure. The franchisor has established a model for success and does not want you to change the formula. Therefore, creativity is often discouraged or even forbidden. Even if you have great ideas and an ability to see new opportunities, the franchisor is invested in building the brand their way, and they will not encourage individuality. If you view entrepreneurship as a way to set free your creativity in how you do things, where you do them, and how much money you can make, a franchise may not be right for you. Likewise, if you find that you like a particular market and a particular business model but don’t like the constraints of a franchise, you can always open a business in the same industry that competes with a franchise. You will have some initial disadvantages, which are outlined above, but you will also have some advantages, including flexibility in your approach, unlimited territory, and freedom from fees or commissions to the franchisor.
Your Income May Be Limited
In some cases there is a cap on how much money a single franchise can earn within a limited territory. Make sure that you know the full extent of your revenue potential (and any potential cap) before you invest in a franchise. You’ll want to make sure that the financial cap is consistent with the money you expect to make and that that number fits with your personal financial goals. For more information, interview current and past owners of the particular franchise that interests you.
There’s Competition at Your Back
Franchises often grow within competitive fields and new, hotter franchises can come along to compete with you. With limited flexibility to be creative due to franchise rules, dealing with outside competition can be challenging, unless, of course, you are the “new competition.”
