Franchises are good, franchises are bad

Buying a franchise is a straightforward way to get into business. You sign up and they give you the trappings of the business right up front.

The business model has been proved, and they are effectively providing new and updated IP and product through the economies of scale and efficiency available through having multiple branches.

For you as a business owner it takes a lot of the uncertainty out of what you are doing. Even better, there is already an existing brandname and market awareness. This is a lot easier than starting from scratch.

If you are in fast food or retail landlords are more likely to allow you to rent a good location in a good shopping centre when you are part of a growing franchise.

Most Master Franchisors are good business people who want you to succeed and will work to help ensure ongoing success.

The flipside is that there can be a high cost to buy in – the upfront fee. Then you usually have to pay quite a bit for fitout, promotional material, training, and ongoing materials.

The Franchisor does not guarantee that your chosen location will succeed. You still need to choose well, and I have seen friends come undone and end up in massive debt through picking the wrong market. This is especially true for international franchises coming into a new country where the business model is untested.

If you are one of the initial handful of franchisees then you can expect to be sharing some of the growing pains and may find your business changing rapidly – make sure you talk openly with the franchisor about this upfront.

Longevity of a franchise is an issue to consider too. The Master Franchisor can grow too fast and end up in over their head both in terms of administration and debt.

Keep your eye on these things and cover your risks where you can.

Be a little wary of service franchises which are effectively asking you to pay a large upfront fee to be given a branded business card and a stationary set to quote and bill clients, with the promise of business referrals. 

Often those kinds of business have very few barriers to entry and for a tiny fraction of the franchise fee you can set up your own business in this same area. Make sure the franchisor is really offering something.

In other words, franchises can be great and they can also go wrong – there are no guarantees in the world of business.