Franchising Pros and Cons

Investing in a franchise is an option many people consider when starting their own business. A franchise is a licence granted by the franchisor that gives the franchisee certain rights. For example, the franchisee may receive the right to sell a particular product in an exclusive area. They may also receive the right to use a trade name or the ability to purchase licensed products.

Here are some advantages and disadvantages to consider before investing in a franchise:

• Inexperienced business owners may receive valuable assistance with starting and operating their business, including operating “how-to” manuals.
• The franchisor may provide assistance with obtaining leases, training staff, advertising and promotion, location selection, quality control etc.
• The franchisor may, because of sheer size, be able to purchase product at a favorable price, and pass the savings on to the franchisee.
• Chance of success may increase because of franchisor assistance and systems.
• A good franchise with a well recognized name may bring more business to your door.

Disadvantages:

• The cost of a franchise can be quite high, and there may be on-going fees, royalties, or franchise renewal costs.
• Franchisors that run into financial difficulty may not be able to live up to their end of the bargain, which may also cause hardship or ruin to the franchisee.
• The franchisor may not provide all they promised—even after your franchise fees have been paid
• You may be restricted in what you can do, such as in your operating practices; where you can purchase product or the prices you can sell for.

The risk of failure may be less when operating a franchise, but it still exists.

Before you invest in a franchise, make sure you thoroughly investigate the franchisor, and determine if you will be happy working with them. A bad decision can ruin your future.

The Canadian Franchise Association (www.cfa.ca) provides tools to help you evaluate franchise opportunities.