The ultimate goal of any business venture is to make profit. Any investor starting a new business has clearly one objective, turning his investment into a profitable revenue. Thus the important topic arises : can franchise owners make money???
Many people think that buying a franchise is a sure way to become a successful business owner, but in reality, there are a number of reasons why becoming a franchisee isn't all it's cracked up to be. In this article we will discuss the disadvantages of buying a franchise in order to help the reader make a reasonable choice when it comes to investing.
High start-Up Costs and Royalty Fees
Start-up costs and royalty fees can put a serious damper on a franchisee's take-home pay. The franchisee must not only pay money toward the location, they must also pony up a certain franchise fee for the right to operate the business for a certain duration of time.
Lofty Raw Material Costs
In order to maintain consistency among their offerings, most franchises insist that their franchisees buy raw materials directly from them or from a supplier with which they have an exclusive relationship. In any case, the prices they charge for these materials (either the company or the supplier) are often much higher than what the materials would be sold for elsewhere.
Lack of Financing
Most franchises don't provide financing. This means franchisees will probably have to tap their savings or obtain some other source of financing (such as a small business loan). In other words, franchisees are on their own.
Lack of Territory Control
While most franchises will limit the number of stores they open in a given area because of fears of market saturation and diminishing returns, many franchises will still try to fit as many retail locations into a given area as possible.
Lack of Individual Creativity
Franchises demand uniformity. In fact, everything from in-store decor, signage, products offered, and the uniforms the employees wear is dictated by the franchise. For a person who likes to be creative, this can mean a bleak existence. Unfortunately, almost every (if not all) franchise has similar requirements. So, if you like to be your own boss, a franchise is probably not for you.
Running a franchise is a serious decision that should be made with care. If you're looking to buy a franchise, learn as much as you can about the company, its products, and the city or town where you are looking to set up shop.
Despite all points mentioned above a well executed business plan can turn your franchise options into a successful business with high returns.
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