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 Is Franchising A Good Investment Idea?

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Prospective investors often ask this question, “is franchising a good investment?” There are two answers to this question–yes if the investor finds a good opportunity and no if they land on a bad opportunity. In other words, succeeding in franchising can vary with a franchise deal. The best part is that you’re likely to succeed if you find a good franchise opportunity.

According to research, franchise startups have a success rate of over 90% in addition to better longevity. According to the franchise lawyer in the USA, many variables might affect the success of a franchise. That said, it’s wise to seek expert opinion when buying or investing in a franchise.

Why You Should Consider Franchising

All franchises are not the same. Some new investors require minimal training and support, while others need limited assistance after signing a franchise contract. Also, some franchisors have built their brands over a long time, while others are new.

Some franchisors will dictate every move of the franchisee while others allow franchisees to manage the franchised unit their way. With that in mind, each opportunity should be carefully evaluated to ensure it’s a good fit for the prospective investor (franchisee).

Advantages and Disadvantages of Franchising

When starting a business, you need to figure out whether you intend to start an independent business or a franchised business. If you’re looking at a franchise, you need to understand that franchising had advantages as well as disadvantages– for franchisees and franchisors.

Prospective investors must weigh or evaluate the benefits and potential risks of franchising before committing themselves financially. In this article, we discuss the pros and cons of franchising to help prospective buyers make informed choices.

Advantages of Franchising

1. Brand Recognition

Established franchises are more popular than relatively new franchises because they’ve been in the market longer. That said, such franchises have higher brand recognition, such as recognized logos and trademarks.

Research shows that consumers are more likely to trust well-known franchises than new, unknown, or independent brands. This means that if you invest in a known franchise, you’re likely to be recommended by the franchisor or the mother company. Enjoying business leads and referrals from the franchisor will undoubtedly promote brand recognition in the designated market or community.

2. Proven and Tested Business Model and Standards

Successful franchises have proven business models and that’s why they attract investors. Having a proven and tested business model means having the following;

  • Standard operational systems;
  • Reliable suppliers;
  • Marketable products and/or services, and
  • Affordable pricing.

So, buying a franchise means that you’re investing in a business that has developed an efficient strategy for running a business without guesswork and common pitfall associated with startup businesses.

3. Training and Support

Established and reputable franchises typically offer ongoing support, such as training, mentoring, marketing, and other services to new franchisees. In franchising, the support and guidance of the franchisor can be invaluable to the new franchised unit as it navigates the startup stage for growth.

4. High Return on Investment

Starting a business from scratch comes with certain challenges. For instance, you might have to wait for a longer period before you start realizing any income–this is experienced by all startups. However, there’s a solution to this challenge– franchising.

With franchising, you don’t start from scratch plus the business model is tested and tried. This means that with the right approach, success is almost guaranteed. Since developing a marketing strategy, establishing operational systems, and finding reliable suppliers are already done for the new franchisee, investing in a reputable franchise means you’ll enjoy a healthy head start.

5. Designated Territories

Franchise businesses typically conduct local and regional market research extensively before settling on the right location to open their businesses. Additionally, such businesses offer resales of existing businesses which come with a stable market share. Successful franchises have designated territories and they understand market demographics and trends in a particular region.

Disadvantages of Franchising

1. Restrictive Regulations

Although the franchisee is the boss in the franchised unit, they’re not in control of the business, meaning they cannot make decisions without informing or involving the franchisor. That said, most franchisees follow the guidelines of their franchise agreement and they end up becoming frustrated.

Franchisors typically have the control, say, and franchisors’ decisions and that’s why you should review the terms of a franchise before signing the contract.

2. Initial cost

Establishing a franchise is costly. even low-cost franchises are not cheap hence, prospective buyers should weigh the opportunity and decide whether they have the required finances.

3. Ongoing investment 

Besides the franchise fee, the franchisee will incur additional and ongoing costs, such as royalty fees, advertising costs, and a charge for training services. So, if you’re considering a franchise, you must keep those additional, ongoing costs in mind.

Buying a franchise can be a good or bad decision as it varies by case. However, understanding the pros and cons of franchising can help you make better decisions.

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