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The benefits and pitfalls of franchising

October 16, 2015 9:16 am

Taking on a franchise can be a great business opportunity but, before you commit your time and money, make sure you have also addressed the potential pitfalls. In the third part of our franchising series, we weigh up the pros and cons for you.

The benefits

Franchising can offer a number of benefits, including but not restricted to the following:

  • A proven business model. If it works according to the “box” you bought, you could easily laugh your way to the bank, provided you are in the right location.
  • As an established brand, it should be easier to attract customers. You are well advised to engage brand analysts for their opinion on the brand you would like to invest in.
  • The experience of other franchisees in your network. That is, if they are willing to share the information with you, which would be very useful.
  • Reduced costs due to the buying power of the franchise network as a whole. This is promised in many franchise operations, but might not always be delivered, so pay attention to this fact before you part with your investment.
  • The opportunity to run your own business supported by your franchisor. Good franchisors, support their franchisees completely. It makes sense. If you win, they win. But then again, commonsense is one of the scarcest resources. There are franchisors who are known to use their franchisees to develop and upscale their shops, and then they create conditions for the franchisee to give up. It is important to consult reputation management consultants to thoroughly investigate a franchisor before you give them your money.

Business man

The pitfalls

  • You must follow the business franchise model created by the franchisor, which means there is little scope for individual entrepreneurial innovations and initiatives.
  • You will be tied to the quality of goods supplied by the franchisor and may not be able to look at alternatives. This means, that if their target market is LSM 5 and below, you cannot want to target LSM 6 and above.
  • You may be restricted in the pursuit of other business interests. This restriction is real. In most franchises, they prefer the operations to be owner managed and run. If you are interested in other ventures, the franchisor might be unhappy. It is important to understand that in franchising, it is the franchisor who is allowed to be entrepreneurial.
  • Running a franchise can be a long-term commitment. You would have invested your hard earned money and it makes sense that you would like to see it grow as you are in it for the long haul.
  • If the franchisor or other franchisees get bad publicity, this may have an adverse effect on your business. This is key. Reputation risk can be very high in franchising, so think, investigate thoroughly, and ponder, before you pour your hard earned money into what can be a bottomless pit. For great franchise operations with a good reputation in the marketplace, an investment into their operations, could be the best investment you ever made.

For more on our franchising series, see:

Part 1: Franchising: Is it for you?
Part 2: 5 tips when assessing a franchisor.

Look out for the final part in the series, coming next week.

Author: Gloria Ndoro

The benefits and pitfalls of franchising Reviewed by on . Taking on a franchise can be a great business opportunity but, before you commit your time and money, make sure you have also addressed the potential pitfalls. Taking on a franchise can be a great business opportunity but, before you commit your time and money, make sure you have also addressed the potential pitfalls. Rating: 0
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