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Advantages and disadvantages of buying a franchise?

By March 21, 2022 No Comments
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There are advantages and disadvantages of buying a franchise, but it is the fastest-growing area of small business. The success rate is much higher than other types of business – but so is the price.

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Question:

What are the advantages and disadvantages of buying a franchise?

Answer:

Franchises are not a recipe for success.  The elements of personal suitability, hard work and efficient management are still major requirements that should never be underestimated. 

Advantages of buying a franchise:
    • Someone else has already proven the idea and you will benefit from their experience and mistakes.  You will be given training and advice.
    • Investment risk may be lower than an independent operation.
    • There is immediate benefit from the goodwill built up by the franchisor.
    • The design and set-up of the premises are proven and determined, as is the equipment and stock mix.
    • The product or service is readily identifiable because of publicity previously provided by the franchisor.
    • There are the cost-saving benefits of the bulk-buying ability of the franchisor.
    • Reliable suppliers have already been sourced.
    • The franchisor continues research and development to improve the chain.
    • There are other people in the same business with whom you can discuss issues.
    • Promotion and advertising are pre-planned by the franchisor.
Disadvantages of buying a franchise:
    • If a franchisor fails, consider what may happen to the franchisee.
    • Close control by the franchisor can mean less independence and the need to closely follow procedures.  You may feel like an employee but without the benefits of employment!
    • Operating costs can be high and you may have to share profits with the franchisor as you will share any marketing mistakes.
    • You have no control over how many franchises are sold, therefore the risk exists of there being too many,

As with any business always investigate the business thoroughly and discuss your findings with your accountant  Make sure you have all documents looked at by professional advisers. 

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