ENTREPRENEURSHIP / APR. 01, 2015
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Disadvantages of Owning a Franchise

Owning a franchise is a great idea which could offer several benefits. These includes brand recognition, franchisor support, assured quality of products and exclusivity. However, despite all its advantages, franchise ownership also has some downsides.

1. Cost

Buying a franchise can be a very costly affair. The first cost you will incur will be the initial fee which you will be required to pay the franchisor. Once your business starts off, you will also be required to pay an ongoing percentage in franchise fees or royalties. Besides the fees paid to the franchisor, there is also the cost of business space, inventory, staffing and equipment. All these costs could be expensive to anyone who wants to start a franchise.

2. Operational Restrictions

Franchisees are usually subjected to several restrictions by franchisors. These could be restrictions on product pricing, what products you can sell, number of employees, hours of operation and which vendors you must buy supplies from. While some of these restrictions can actually be beneficial for your business, others will only end up stifling your creativity and growth.

3. Guilt by association

One of the main advantages of franchise ownership is name recognition. People are likely to be favorably predisposed to your business because of the name it bears. However, name recognition could also work against you, especially if the franchisor or other franchisees are getting bad publicity. For instance, if you own a franchised restaurant, your business could suffer if another similar franchise elsewhere is implicated in a food poisoning case. This is why it is very important to work with a franchisor that has a strong, time-tested reputation.

4. Signage

When you own a franchise, the parent company will require you to place some kind of signage around your store. However, before placing any sign on your property or building, you will need to get approval from your city’s planning department. At times, getting this approval could be a long process, especially when the city has strict laws about the kind of signage allowed. In addition, placing such signs around your store could also be quite costly in terms of license fees. Therefore, before investing in a franchise, take time to find out the requirements of your city’s planning department. 

 

5. Advertising Restrictions

Most franchisors have specific advertising styles and placements which franchisees are required to adhere to. At times, the parent company will run the ad themselves and expect you to pay for it. In addition, you might find yourself prohibited from advertising in specific local publications, thus denying you the opportunity of reaching a particular target market.

6. Limited Growth Potential

The desire of any business owner is to be able to grow without any limits. However, owning a franchise means that you will be subjected to territorial restrictions by your franchisor. Not being able to sell your products beyond a specific geographic region will limit the growth potential of your business. In addition, you might not even be able to open new units in other areas due to other already existing franchisors that have territorial rights. Another factor that hinders growth is the fact that franchisees cannot franchise their businesses.  

What are your thoughts about owning a franchise? Please share with us in the comments section below.

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