4 Disadvantages to Owning a Franchise

1. Owning a Franchise Means Following "Their" Rules

Part of the thrill of business ownership is creative freedom to devise and incorporate strategies. Starting a business from scratch allows you to make all the decisions and take all the gambles with your ideas.

When owning a franchise, much of the creative freedom is taken away. Part of the strategy of having franchises developed by the parent company is to mimic each part of a successful formula down to how napkins are folded in a restaurant franchise.

While some franchisees are just after working with a proven formula for success, the lack of creative freedom could be anguishing to franchise owners who have a creative streak.

2. Cost

While franchise owners normally have breaks with equipment and operating costs, the franchise will be paying a certain percentage of its profits each month to the parent company.

Additionally, buying a highly successful franchise can be reflected with an equally high price tag.

Other charges and fees can also be included in the contract at the time of the purchase of a franchise. Many of those costs are not only on-going on a monthly basis, but can be altered or increased at the will of the parent company. In other words, there is little room for a renegotiation of contract down the road.

For example, television advertisements and commercial time can be divided up among all franchisees. If the company has deemed it appropriate, it could choose a prime time airing or during a special event and each franchisee must share in the cost.

3. Some Franchisors Offer Little to No Support

Often overlooked until the owner of a franchise needs additional guidance; there may or may not be additional training or support available. Sadly, many franchises fail simply because not enough direction and support was offered by the parent company.

Let's assume that you are going into business for the first time and instead of starting from scratch, you have decided to buy a franchise. During the negotiation and contract-writing period, the parent company seems agreeable and tells you that you are never alone running the franchise.

Ask to see the measures taken so that franchisees never "feel alone." Are there on-going training opportunities? Are there regular meetings? Can you enlist help from another franchisee in case a problem arises that needs an immediate solution?

4. Not All Franchises Are Created Equal

If you think that a company that offers business franchise opportunities must be doing something right to be so successful---think again.

Legitimate and highly successful franchises exist but they can be extremely costly to acquire and run.
Lesser-known franchises can be cheaper but more costly in the long run for many reasons. Among those reasons include little concern about a franchise's success by the parent company.

Just as with any other type of investment, there are levels of quality and return rate on your money. Some franchises simply do not work; perhaps the location is not ideal, maybe the products' heyday came and went, and ineffective advertising or lack of good marketing has caused the decline of a franchise.

Ask to see all financial records and advertising methods used. Sometimes a dwindling business franchise can be revived but you will want to know each one of the problems and pitfalls prior to owning one. There are many companies where the only goal is to make money by selling (even bad) franchises, so be cautious! Consider hiring a business franchise broker to find a great deal at a great price.

Attempting to determine if a franchise is of value going by price alone is not sufficient information for making a sound decision.

Important Points to Remember:

Not all franchises are successful.
Consider hiring a franchise broker.
Make sure you have examined all documents and understand all payments from you to the franchisor.
Make sure you are aware of all rules and expectations from the franchisor.
Make sure you what ongoing training opportunities are offered by the franchisor.

Resources:

Should You Use Franchise Brokers

What Franchise Brokers Do

Questions to Ask Before Buying a Franchise: