It's likely that more than a few people researching franchising are doing so for a completely different reason than those who have been downsized or simply want to own their own business. The backbone of the American economy has always been the hard-working small business men and women who produce great products and services while providing jobs and offering employees a way to support their families. But what happens when a small independent businessperson is approached by – or discovers that - a franchisor is interested in converting their mom and pop business into one of its own franchise units? Well, it's a scenario that seems to be playing out more and more in recent years. Like many other topics we have covered, there is no simple or definitive answer.
To be sure, there are a number of pros and cons to converting an existing business operation into a franchise one. Let's take a look at some of the major advantages and disadvantages to this business strategy.
Control – This is the biggie. As it stands now, you're an independent business owner. You call the shots. You set the prices. You decide what to invest and when. You decide what products and services to offer. The list goes on. Team up with a franchisor and the game changes. You'll be required to follow the franchisor's system and offer their products and services. And that's not necessarily a bad thing. The system has been built and tested over time and it works. The key is for franchisees to implement the system and stick to it. If that's something you're not willing to conform to than franchising is probably not a good choice for you.
Marketing – A well-known franchise brand is probably going to carry a significant amount of marketing muscle and clout. This could benefit an independent business operator who has, perhaps, been hamstrung by marketing and advertising costs – not to mention the required time, effort, and money required to create the marketing materials in the first place. Big franchise brands with big marketing budgets just may be able to drive in more customers to your business. More customers is always a good thing. If you decided to join a franchise brand, you would still be required to contribute in some way to the cost of the marketing efforts, but chances are you would get a lot more bang for your buck.
Financial – The franchise model is an effective one but it's one where the franchisor always gets a piece of the financial pie. Going franchise might save you on some marketing expenses; and it may get you some better vendor and supplier pricing. But don't forget the franchise fees and ongoing royalties that will be due. Something else to consider, with you or without you, a franchise brand could decide to storm your market with numerous franchise locations stealing both your customers and your profits. Furthermore, your exit strategy options could change significantly if you decide to become a part of a franchise operation. What was once yours to operate and sell as you wished, could now be filled with restrictions and legal and contractual headaches.
If you're considering hitching your independent business wagon to a franchise operation, carefully evaluate the pros and cons for your business, market, and personal comfort level. If the franchise move could likely increase your potential revenue, lower some of your operating costs, and build more profitability into you operation, it could be a smart choice.
19.1: Franchisee Checklist
19.3: Budgeting Skills for Franchisees