Is It Good To Join An Existing Franchise?

The United Kingdom’s private sector has 5.5 million businesses, and 5.45 million have less than 50 employees.

Entrepreneurs entering the market must conduct market research, weigh the risks and determine if they want to:

• Operate an independent business
• Join an existing franchise and become a franchisee

Independent businesses have higher failure rates than franchisees, but you have complete freedom over your decisions. Franchises come with a blueprint to success and a brand that consumers know and trust.

We’re going to discuss franchise benefits and drawbacks​ to help you judge if joining an existing franchise is in your best interest.

What Are The Advantages Of Operating A Franchise?

Buying into a franchise has its perks. You enter a business that already has a strong brand. Customers know what to expect from your company, and you have the support of a franchisor. Many entrepreneurs prefer this type of venture because it offers:

Lower Risk of Failure

Business always comes with an inherent risk of failure. An estimated 1-in-5 businesses will close during their first year of operations and 60% close within the first three years. Joining an established brand offers:

• A 1% risk of failure within the first year
• Greater chance of long-term success

The risk of franchise failure is significantly lower than that of an independent business because there is more oversight. One benefit of buying into a franchise is that you need to meet certain capital requirements, and you’ll use a plan that already works.

You can replicate the success of other franchisees, which offers a lower risk of failure.

Brand Loyalty

Brand recognition makes sales. Anyone living in the United Kingdom knows of:

• Costa Coffee
• One Stop Stores
• Kumon
• Vodafone
• Clarks Shoes
• Waves

You also know McDonald’s, Subway, Domino’s and many of the other fast food restaurants because you’ve seen their commercials and advertisements. One of the key benefits of a franchise is people know who you are.

Of course, you’re opening a new location or buying an existing one, but customers will come in because they know the brand. Some may even be loyal to the brand and have been waiting for someone to open one up in your area.

Support From The Franchisor

Training and support are invaluable in business. Franchisors often provide robust support that includes:

• Initial training on how to run the business
• Full training on setting up the business
• Manuals for continual operation
• Ongoing advice

If you have issues with suppliers or management, the franchisor will help you resolve them. A support system strengthens your business and sets you up for long-term success.

Proven Business Model

Speaking of successful businesses, you’re given the blueprint to success. You will have access to suppliers, recipes, menus, operating procedures and even advertising that already works for the franchise.

You follow the business model, maintain the high standards of the franchise, and your chances of success are much higher than if you were an independent company.

Higher Profits 

One of the primary benefits of buying a franchise is that you’re more likely to see a higher return on your investment much sooner than with an independent business.

That’s all down to the fact that franchises have a proven business model and an established brand. These two factors make it easier to attract customers and ​start genereating revenue faster because you already have your target market’s trust.

More Financing Opportunities

Launching a business requires capital, whether you’re buying a franchise or opening an independent operation. Financing can help you get things up and running, but loans are not always easy to obtain if you’re opening a business with no proven track record of success.

Franchises, on the other hand, do have a proven business model and a history of success. With greater opportunity for profits, lenders are often more willing to grant loans to franchisees.

What Are The Disadvantages Of Operating A Franchise?

Like any other business opportunity, there are advantages and disadvantages to operating a franchise. Some of these drawbacks can include:

Costs May Be Higher Than Expected

Depending on what type of franchise you’re buying, the costs may wind up being higher than starting a business of your own. Along with the initial costs of purchasing the franchise, you may be required to:

• Purchase products and services from the franchisor
• Pay royalties or ongoing management service fees

Many franchisees find that the advantage of having a proven business model and established brand outweigh this drawback, but that is not always the case.

Less Control Over Operations and Marketing

Buying into a franchise network has its perks – support from the franchisor, training help, a solid marketing strategy. But all of this support comes at a price: control.

As an independent business owner, you have full control over every aspect of your business and how you run it. 

Franchisees typically have little control over:

• The business’s operations
• Marketing strategies

You may not be able to make changes to suit your local market or respond to market changes as a franchisee. 

Profits are Shared with the Franchisor

When you start an independent business, the profits are all yours. However, when you purchase a franchise, a percentage of the profits are shared with the franchisor (known as royalties). 

Royalty fees vary from one franchise to the next, but can range from 5-10% or even as high as 20%.

Selling a Franchise is Often More Complex 

Should you decide to sell your franchise in the future, the sales process may not be as straightforward as it would be with an independent business.

The franchise agreement may outline terms for:

• The process of selling the franchise
• The franchisor’s consent requirements
• Fees you may have to pay

The franchisor may also require that they be offered the first right to buy the business from you.

Like any other type of business, franchises have advantages and disadvantages. Whether buying one is the right move for you will depend on your goals and personal preferences. If you prefer to have complete control over branding, marketing and operations, an independent business may be the ideal option for you. However, if you like the assurity of using a proven business model and buying into an established brand, a franchise is the optimal choice.

Want to learn more about buying a franchise? Click here to learn everything you need to know about whether an ActionCOACH franchise is the right fit for you.