Disadvantages of Owning a Franchise

The idea of owning a nationally recognized business can be quite attractive for several reasons: You won’t have to get spend many months getting your name brand known, you have a corporation to back you up and you will have assistance in all that you do. While owning a franchise can be a means to operating your own business, consider the pros and cons before investing.

Cost
Opening a franchise business can be costly. The average cost for franchise fees to become a franchisor is about $50,000. There is also the cost of equipment, the building, overhead and marketing supplies. You may also have to pay annual royalties, or franchise fees, to the company as well.

Restrictions
Owning a franchise often means following the franchisor’s guidelines. The restrictions placed on you and your business can include hours of operations, where and how you advertise, number of employees, how you handle complaints, what products you can offer and which vendors you can order from.

Limited Potential For Growth
When you purchase a franchise, you may find that your ability for future growth is limited. Franchise companies often restrict territory areas to prevent similar stores from competing with each other for customers. If you purchase a franchise, be prepared to know that you probably won’t b allowed to open another office or store in a geographic distance from your original location. Check with the franchisor before your first purchase to understand any territory restrictions.

Association Problems
A franchise with a bad reputation can become a disadvantage if you purchase one of its franchises. Regardless of how well you present your franchise outlet, the overall reputation of the franchise you represent can outpace your good intentions.

Advertising Costs and Restrictions
In many cases, a franchise will require specific styles and placements of advertisements and pass the cost on to you. Sometimes the corporation actually places the ads and then sends you an invoice. At other times, you are prohibited from advertising in local publications, which can prevent you from reaching certain potential customers.

Signage
Franchisors generally require certain signage to be placed in and around your business. This can become challenging from a cost standpoint. The city where your franchise is located will have to approve any signage you plan to use on the side of your building or on your property. This can involve a lengthy process in which you will have to appear and plead your case if the franchisor corporate requires signage that the city normally prohibits. Check with the city planning department to determine restrictions that might affect your franchise before investing in the franchise.