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FRANCHISE

Advantages and disadvantages of buying a franchise

In a franchise business, the franchisor provides a developed way of doing business, ongoing guidance, systems and assistance in return for periodic payment of fees and/or purchases.

Buying a franchise can be a viable alternative to starting your own business. Listed below are some advantages and disadvantages of buying a franchise.

Advantages of buying a franchise

  • Franchises offer the independence of small business ownership supported by the benefits of a big business network.
  • You don't necessarily need business experience to run a franchise. Franchisors usually provide the training you need to operate their business model.
  • Franchises have a higher rate of success than start-up businesses.
  • You may find it easier to secure finance for a franchise. It may cost less to buy a franchise than start your own business of the same type.
  • Franchises often have an established reputation and image, proven management and work practices, access to national advertising and ongoing support.

Disadvantages of buying a franchise

  • Buying a franchise means entering into a formal agreement with your franchisor.
  • Franchise agreements dictate how you run the business, so there may be little room for creativity.
  • There are usually restrictions on where you operate, the products you sell and the suppliers you use.
  • Bad performances by other franchisees may affect your franchise's reputation.
  • Buying a franchise means ongoing sharing of profit with the franchisor.
  • Franchisors do not have to renew an agreement at the end of the franchise term.

Franchising is seen by many as a simple way to go into business for the first time. But franchising is no guarantee of success and the same principles of good management—such as informed decision-making, hard work, time management, having enough money and serving your customers well—still apply.

Be cautious when buying into a franchise if you have to develop the market and the brand in your designated area. Make sure your investment generates healthy returns and a capital gain when you sell.

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