Opening a franchise can be a lucrative way to start a business, but it’s essential to fully understand both the advantages and disadvantages before committing to this path. According to the 19th annual Banque Populaire Franchise Survey, conducted in partnership with the French Franchise Federation and Kantar, of the 34% of French people who want to start their own business, 44% are considering franchising as a way of doing so, proving the attractiveness of the model. However, not everyone will find what they’re looking for, and to weigh up the pros and cons before taking the plunge, it’s important to know the pros and cons of franchising.
When you think about setting up your own business, franchising quickly comes to mind as an attractive model… But why? What are its advantages? Does the model really have only advantages? Is it suitable for all entrepreneurs?
Advantages of Franchising
Franchising Saves Time and Reduces Risk
By joining a franchise network, the entrepreneur becomes independent without being alone. Of course, they become a business owner, but they will be supported from A to Z, every step of the way, unlike a sole trader. This will save them an enormous amount of time and limit the risks involved.
In fact, franchising involves replicating a successful business model and applying the proven strategies and practices of a concept that has already demonstrated its viability in the marketplace. Franchisees benefit from a number of advantages:
- Established Visibility, Brand Awareness, and Image: One of the biggest hurdles for any new business is building a recognizable brand. Franchises come with a built-in customer base and brand recognition that takes years to develop independently.
- Enhanced Credibility for Financing: The established track record of the franchise can make it easier to obtain financing from banks and other financial institutions, as they often perceive franchises as less risky than new, independent businesses.
- Franchisor Know-How and Continuous Support: Franchisees receive ongoing support and training from the franchisor, which can be invaluable for those new to business ownership or a specific industry.
- Access to Management and Communication Tools: Franchisees benefit from access to sophisticated marketing materials, management tools, and established supply chains that would be difficult to replicate as an independent business owner.
- Networking Opportunities: Being part of a franchise network provides opportunities for learning and collaboration with other franchisees. This collective intelligence can help solve common problems and innovate more effectively.
- Economies of Scale: By pooling resources with other franchisees, franchises can benefit from cost savings on supplies, advertising, and other business expenses.
- Access to Innovative Products and Services: Franchisees often have early or exclusive access to new products and services developed by the franchisor, helping them stay ahead of market trends.
In this way, the franchisee is not going in blind. By joining a brand, they obtain the keys to repeat a pre-existing success. They even have the opportunity to learn a new trade, thanks to the initial training offered by the franchisor. After all, it’s easier to apply a concept in an unfamiliar, or less familiar, sector than it is to give up long-held habits developed over the course of a professional career.
Faster Growth and Crisis Resilience
Franchises also offer the potential for faster growth than independent ventures. If the entrepreneur so wishes, they can even open several outlets, as multi-franchising is encouraged in many chains. Franchises are typically designed to be scalable, with systems and processes in place that make it easier to expand to new locations. This built-in scalability allows franchisees to grow their businesses more quickly than they might be able to on their own.
Furthermore, franchises have shown remarkable resilience during economic downturns. Recent years have demonstrated that franchise businesses tend to be more resilient in times of crisis. Both in 2020-2021, during the Covid-19 pandemic, and for over a year now with inflation, having a network behind you is proving to be an invaluable asset. The collective strength of the network can provide stability and support that independent businesses may lack.
Disadvantages of Franchising
Franchising: not for everyone
Setting up your own business often goes hand in hand with a desire to “become your own boss.” For some independent entrepreneurs, however, the framework imposed by franchising seems to somewhat undermine this desire.
Indeed, all or part of the know-how shared by the franchisor is non-negotiable under the franchise contract. This can be frustrating for the franchisee, who sometimes sees the situation as a loss of freedom. The same goes for regular feedback on results. The franchise agreement typically requires strict adherence to the franchisor’s established business methods and operational guidelines. This includes everything from the choice of suppliers to marketing strategies, which can limit the franchisee’s ability to innovate or adapt to local market conditions.
In franchising, the entrepreneur can’t do what they want when they want. They must adhere to the brand’s standards and practices to maintain consistency across all franchise locations, which is crucial for the brand’s reputation. The homogeneity of practices within the brand will guarantee the smooth running of the whole operation, which can sometimes feel restrictive to those who desire more creative or operational freedom.
Financial Constraints and Obligations
Other disadvantages inherent in franchising can put entrepreneurs off. This is particularly true of financial constraints. On the one hand, the initial investment is higher, since in addition to the costs of setting up the business, there are the network’s entry fees. These fees can be substantial and are often required upfront, which might be a barrier for some entrepreneurs.
On the other hand, franchisees must then pay royalties to enable the group to operate, either in fixed amounts or as a percentage of sales. These additional costs are specifically linked to franchising and must be taken into account by the entrepreneur, who may sometimes see them as a hindrance to his project. These ongoing fees can cut into profit margins and may not always be justified by the support and benefits provided by the franchisor.
Restrictions on Business Sale and Transfer
Finally, the franchise contract also sets out the conditions for transferring the business. Pre-emption or approval clauses enable the franchisor to have a say in the buyer’s decision, or to position himself as the buyer, in the interests of the network. This can complicate the process of selling the business and may limit the franchisee’s ability to exit the franchise on their own terms. There’s also the risk that the transfer may take a little longer than expected.
Franchise, Franchisee, Franchisor: A Matter of Personality
So it seems that the choice of a franchise depends above all on the personality of the project owner. Does they need complete autonomy to set up their own business? Is they ready to comply with the network’s requirements and conditions? Do they have the right mindset to work within a network, following a predefined business model while also benefiting from shared resources and collective strength?
If the answer is yes, you’ll need to think even harder, because, in addition to a concept, the candidate is choosing a franchisor and his team, with whom he must be compatible. Franchising is not just a business decision; it’s also a relationship-based commitment. Franchising may be an entrepreneurial adventure, but it’s also a human one, and relationships are at the heart of a company’s success. It’s essential to take your time to make the right choice!
In conclusion, opening a franchise can be an excellent opportunity for the right type of entrepreneur. However, it’s crucial to thoroughly assess both the benefits and the limitations before deciding if franchising is the right path. Consider your personality, your business goals, and your willingness to operate within the franchise system to ensure a successful and fulfilling business venture.
