The Pros & Cons of Franchising
Posted on: February 5, 2018 by RMS Hospitality
Franchising a business isn’t for everyone, as we discussed in our last blog. However, if you have clients who are financially capable, have a proven model of success and have the resources to do so, they’ll need to know the basics of franchising. Or, if you have clients who are interested in buying into a proven successful franchise chain, this article will be equally valuable to them. Many people want to be a part of a successful business, but operating a franchise requires more than just reading the manual and starting out on the right foot. In this blog, we’re going to cover the pros and cons of operating a franchise to assist your clients in making a realistic decision that’s right for them.
Pros of running a franchise.
Reputable brand and customer following.
As one of the biggest challenges in starting a new business, building a brand and a loyal customer base is bypassed when buying into a franchise.
Marketing is done on a national level without your clients having to personally stress out about how to create and implement a strategy. Next, relationships are already established with vendors and suppliers, saving your clients the hassle of finding someone to partner with for the long haul.
Finally, franchisors have plenty of resources to utilize for support. Other owners of the franchise serve as a built-in network for advice, feedback and tips, including trade secrets.
Because of the proven track record of success, loyal customer support, and a network of support and partnerships, starting a franchise comes with inherently less risk than a novel idea.
Cons of running a franchise.
Startup costs and royalties.
According to Live Career, here are some of the downfalls when it comes to startup costs:
- Initial payout (Franchise Fee and Start-up Costs). Some of the bigger franchise operations can involve very large initial costs, often more than what it would cost to start your own business.
- Royalty payments. For as long as you are a franchisee, you will have to pay some percentage of the monthly gross back to the franchisor, reducing your profit potential.
What’s more, depending on certain contractors, some franchises might even be responsible for paying a cut of the marketing costs.
Most franchise contracts have very explicit standards, allowing little or no alterations or additions to the brand, stifling any creativity on the part of the franchisee. Buying into the franchise means your clients are coerced into following their rules.
If the franchise as a whole suffers from a bad reputation or a scandal, your client’s personal business will suffer as a result.
About RMS Hospitality Group
At RMS Hospitality Group, our expertly crafted policies are written specifically for the hospitality industry. We offer custom tailored solutions to meet any venue’s specific needs. For more information, contact our knowledgeable experts today at (516) 742-8585.