The Drawbacks of Franchising
What’s the downside of franchising?
Franchising is not for everybody and it is important that you know what the drawbacks are before making any sort of commitment. It can be an inflexible method of doing business as each Franchisee is bound by the franchise contract to operate in the business in a certain way.
The Franchisor has created a brand and developed a system and to protect it he needs the Franchisee to observe the rules he has set. You’re an independent business owner operating under the Franchisor’s umbrella in Ireland. But you have to follow the rules.
You’re part of a team now. You’ll sell exactly the same product or service, probably from shops of offices that look the same and, in some cases, wear the same uniforms as everyone else in the network. There’s little freedom to be creative.
You will also be restricted to a defined location—perhaps a town (or part of one) or a broader territory defined on a map. You will be able to operate there exclusively but not outside it, unless the neighbouring territory is available and you get agreement to work it until it is sold.
What you do and how you do it is laid down in the Operations Manual. It’s the Rule Book of the business and every franchise business in Ireland has one. For many people this is just what they’re looking for —a chance to operate a business that’s already a proven success. They’re delighted with a Rule Book to show them what to do.
It means all the groundwork has been done, the procedures are established, and if the business is making money for other franchisees why wouldn’t it work for them. But do consider carefully if you’d be happy to run a business under such constraints.
Don’t forget the service charges—set monthly management fees or a percentage of your gross sales which need to be paid to the Franchisor. These payments are rarely an issue in the early days when you are establishing your business and getting plenty of support. But later, when less use is being made of the Franchisor’s services, a Franchisee can resent making these payments.
What if you get bored with the franchise? Do your homework before you buy and choose a business you’ll enjoy. It is not easy to get out of a franchise agreement before the term has expired and you may have problems selling it on.
Remember, too, that not all franchises are soundly based or run properly. Before you bind yourself to one make sure it is competent and ethical. Seeing that the Franchisor is a member of a recognised franchise association will offer some comfort but check to see if the business format has been fully tested in a number of locations.
Joining an established franchise is less risky than signing up to one that is relatively new—say, less than one year in business. They’ll be able to show that the business can be profitable and produce accounts to prove it, whereas the newcomer can only offer you hope and expectation.
Depending on the risks you’re willing to take, this type of franchise opportunity will either be attractive or one to be avoided.
There are incompetent Franchisors out there, too. They might mean well but they have little understanding of how the system should work and what training and support they need to provide. The competent Franchisor will have thoroughly researched his market and have tested his business through one or more pilot outlets in different locations. The incompetent Franchisor will have done neither of these things. You could be his guinea pig, and the experience could be harmful to both your pride and your pocket.
As in any other industry, there are rogues out there who think selling franchises is an way to make easy money. They set up a “franchise” which looks great but has nothing behind the facade. With no intention of providing the support that is essential for building a franchise business they then target people who are so keen to buy they fail to make a proper appraisal of the business being offered.
Having said that, the vast majority of Franchisors are decent people who sincerely want to develop people in both their personal and professional lives and in doing so create a network that will give them an income stream for the foreseeable future.
Thanks to your words - Tony Fitzpatrick. Kudos!