Disadvantages of Being a Franchisee

For every advantage of the franchise system, there seems to be a disadvantage. This will turn off some of you, but, again, that’s fine. It’s better to realize now, before you’ve committed to a franchise, that it just doesn’t suit you. But, even if you do grab some great franchise opportunities and go ahead with buying them, you should be fully aware of the disadvantages of being a franchisee. These disadvantages include the following:

Loss of independence. Although some franchisees may be comforted by their franchisor’s rules and procedures, others will chafe against these constraints.

Start-up costs may be a burden. According to a recent IFA survey, 88 percent of franchisors charge an initial franchise fee of $40,000 or less. But this fee doesn’t cover other expenses such as real estate, payroll, equipment, insurance, and other needs. But these are usually the same type of expenses you would experience in starting your own business from scratch.

Franchising requires a long-term commitment. Think of franchising as an arranged marriage for about 15 to 20 years. Can you make this relationship work in the coming years? Will you resent paying royalties through the term of your partnership?

Room for innovation is limited. If you have a great idea, your franchisor may want to hear it. But you may not he able to act on all of your ideas.

Ongoing support may be less than promised. Determine the level of support you’ll get from the franchisor and if it’s ongoing or just during the start-up phase.

Expansion may be restricted. Your agreement with your franchisor will spell out if, when, or where you can acquire new units within your company or with another company.

The franchisor is the final decision maker in an unequal partnership. While you are the owner and are fairly autonomous, you are in a partnership with someone who is bigger and more powerful than you and often has the last word on disputes and disagreements as defined in your franchise agreement.

You must be open about your finances. You’ll have to open your books to the franchisor, and you may feel that your privacy is being invaded.

Another franchisee can affect your business. A good franchisor will terminate its franchise agreement with a substandard franchisee, but bad service at one unit can make customers think twice about patronizing yours.

You’ll give up control over many issues, including possibly the site of your establishment, your vendors, the services and product you offer, and your territory. Expect to be vetoed at times.

If you have read all of the disadvantages listed above, but believe that they’re worthwhile tradeoffs for the right to represent a particular product or service, you may be on the road to becoming a franchisee. Continue thinking about the pros and cons of franchising, and if you still feel comfortable, you could make a good franchisee.

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