Is Buying a Franchise a Good Idea?

Daniel Penzing
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Advantages to Buying a Franchise

Franchising can be an attractive asset for a number of reasons. First, you can create a business empire in a way that no one else can. If you have a franchise and are running multiple business locations, you have a huge advantage over any non-franchised competitors in your area because of your established brand, established customer base and unique resources. Additionally, franchising leads to lower costs because brands and trademarks are already established, as well as economies of scale. You will also be able to piggyback on established procedures, leading to far less risk. Lastly, most franchises come with a free real-estate platform, further reducing risk.

When deciding whether to buy a franchise, many questions must be considered. One of the biggest concerns is the financial investment – what are the initial fees, the monthly fees, and is it worth it to me? Most franchises will vary significantly in cost, but the primary cost breakdowns will be the initial fee, the monthly royalty fees and the ongoing product costs. The initial fee includes citizenship fees, startup costs, training and equipment. These fees are typically fairly affordable, and they will vary from franchise to franchise. The monthly royalty fees can vary more significantly, depending on the franchise, and can be around 10%.

Downsides to Buying a Franchise

One of the major downsides to buying a franchise is that you will have to work within the confines of a very specific business model that someone else created. While there's nothing inherently wrong with this…and many companies work well with a set model – it does mean you lose a bit of your freedom.

A drawback to buying a franchise is simply the possible investment of time. If you really want to get started in making money, buying a franchise isn't the fastest way around the track. Buying a franchise requires a significant up-front cost with no immediate potential for return. It may take awhile before you start seeing a profit, and the amount of time it takes to get there may not suit your personal business model perfectly.

You don't have to be a multi-million-dollar corporation to benefit from the buying power of a franchise. The smaller franchises available, such as a car wash or newsstand, can provide be a sensible investment and a healthy source of profit. But before you start spending your money on franchising, there are certain things you need to check out.