While the allure and benefits of entering into a franchising arrangement are great, there are some considerations to make when deciding if operating a franchise is the right decision for the individual business owner.  Placing oneself under the umbrella of a larger financial entity can help allay risk and offer a greater chance of success, but it also limits the autonomy of the business owner and is not without its own costs.

Financial considerations are the most obvious.  The initial costs for starting a franchise can often exceed the costs of establishing an independent business.  Beside the cost of building a business from the ground up, there are additional franchising fees that must be paid to the franchisor up front.  Often a franchisor will expect the franchisee to start their business at a specific standard of operations, utilizing equipment or procedures that are more costly than if an independent business owner were to “start small” and work his/her way up.

Beyond the initial start-up costs and franchise fees  a franchisee agrees to pay royalty payments for the use of the franchisor’s trademarks.  This means that for the duration of the contract, for the life of business, a percentage of the franchise’s monthly gross goes to the franchisor.  This reduces the overall profits of the franchisee and can be considered an additional operational expense that is not incurred by the independent business owner.

Some franchising contracts also stipulate that the franchisee pay a marketing fee to offset the cost incurred by the franchisor for marketing campaigns and market research.  The costs to the franchisee for such marketing is usually substantially less than the cost of comparable advertising, if done by an independent business.  However, the franchise operator has no say in how the marketing is conducted or how advertising funds are spent.

The narrow degree of creativity afforded the franchise owner is not
limited to the realm of advertising, either.  All aspects of the franchised unit must conform to the overall scheme of the franchising business.  Most franchisors have standards of appearance and presentation covering all aspects of the business from general site design, down to employee uniforms.  There is little or no leeway for alterations or additions to the overall business or how it is conducted.  In order to use the brand name an owner is contractually obligated to follow the brand’s established mode of operation.

Many franchise contracts also specify explicit sources for business supplies.  These suppliers have been selected to insure a consistency in the ability to meet the demands and the quality standards of the franchise.  While this alleviates the need of the owner to establish such sources independently, it also places a limit on flexibility.  Such suppliers may not always be the cheapest or most convenient source of materials.

Further considerations to take into account when deciding if franchising is a viable business option center around the overall commitment that a franchise contract entails.  Once agreed upon, an owner may find him/herself locked into a lengthy contractual obligation with a company that is not well suited to his/her individual business goals.  Furthermore, an owner who is incautious in selecting a stable franchisor may find him/herself tethered to a sinking ship with little means of extraction.

It is important for a potential owner to approach the issue of franchising with clearly defined goals and expectations.  While the benefits of operating a franchise are great, there are constraints that are not placed upon the independent business owner.  It is important that any potential owner establish whether or not the benefits of franchising outweigh the limitation on an individual basis and keeps in mind that there are no guarantees of success either way.

Starting a business and being your own boss is an exciting venture, but it should not be taken lightly. Proper support for your business is very important. Check out an example of a real franchise and how they run by visiting FiltaFry or Learn about Filta .