As with most anything in life, there are pros and cons, and this also goes for franchising. While there are advantages to it, there are also a lot of disadvantages that you need to take into consideration.
Let’s take a look at some of these now:
Lack of control
One of the bigger drawbacks of franchising is that you have no control over pricing and products. As a franchise owner, you’re going to be told how to run your business – from the area you’re authorized to sell in, to what products you are allowed to sell. This can be a deal breaker for any creative, on the ball person! You might have noticed a hot trend developing, you’ve done your homework and found not many of your competitors are doing this yet. If you could get a jump-start on them it could make you a lot of money….. if you were even allowed to sell your hot new item!
Lots of rules
When it comes to franchising, there will be a whole lot of rules and procedures you’re expected to follow. Basically it’s one of those ‘my way or the highway’ type things – meaning you do it their way or not at all. If you’re not willing to run things their way, you risk losing your franchise.
Material or product purchases
Because franchisors want their franchises to all look the same, there may be some purchases you are required to make. These purchases can include items like displays, materials or products. Often you can only buy your materials from the franchisor, leaving you out in the cold when there are specials on elsewhere! Another thing to be aware of is equipment you might be required to buy: the franchisor adds a new line for which you are not set up and you will have to get the equipment to produce it, whether you want to or not.
Your franchise fees are what you will have to pay to the franchisor so you can get your business up and running. These fees vary depending on the type of franchise you buy, a brand new one in a new area, or an established one that someone has built up for many years. The cost of a silver fingerprint jewellery franchise can vary from $20,000 – $75,00. Another word of warning here, make sure you see your own accountant for advise, let them have a look at the figures and then listen to what they have to say!
I recently heard of an existing franchise for sale here in Australia, it was offered for $40,000, but the figures didn’t show the turn-over to support the price. When asked about this the seller said she was selling it ‘on the potential’…. Right! So in fact she was trying to charge for work the new owner would have to do to make that potential a reality! She wanted to get paid for their work!!! Amazing!
A huge cost of franchising are the ongoing royalty payments you’ll be required to pay. These royalties will be paid on all sales and they cover the marketing and advertising support you’re given. Word of caution here – do your research and see if you can talk to other franchise owners and ask them if they are happy with the support they get. If you’re going to be required to pay royalties because of marketing and advertising support, make sure the franchisor is going to give you good support and value in the marketing! Find out how the royalties are charged, how often and what the percentage is.
All it takes is bad press from another franchise location to hurt the reputation of your business.
Non compete form
It’s pretty standard that as a franchise owner you’ll have to sign a form known as a non compete form. What this form implies is that you will not start a business similar to the franchise. Some non compete forms state you can’t do this while running a franchise store and some will even require that you can’t start a similar business for a certain amount of time after you no longer are a franchise owner.
Franchisees are expected to perform, this is very true in the silver fingerprint jewellery franchises, generally a percentage is charged per month. If you don’t make enough money they don’t get their expected cut either. Hopefully assistance will be given if you are struggling, but there is also the chance of pressure being applied to get you to work harder to meet quotas.
Lots of work
Don’t think that franchising is easy and there won’t be a lot of work involved. Yes, you’ll receive support and help to get your franchise up and going and to keep it running smoothly, but it won’t be run for you! It’s still up to you to put the time, effort, work and dedication into it. The success of your franchise will rely heavily on the amount of work you’re willing to put into running a successful business.
So do your homework when it comes to franchising. Starting your own business from scratch might seem harder, but it could potentially outweigh all the disadvantages of franchising.