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What are the advantages of buying a franchise?

The unofficial motto of the franchise industry is that franchisees are in business “for themselves but not by themselves”. This saying perhaps sums up the greatest strength of franchising.

If you start up a business under any other circumstances, there is little in the way of a safety net. If you miss a loan repayment or make a mistake with your marketing or pricing, the consequences can be dire.

The ride may be a little less exhilarating when you’re a franchisee, but the system adds a comforting level of security that ordinary start-ups could only dream of.

Franchises do fail and you can’t expect to sit back and watch the money roll in without hard work, but the back-up you receive will boost your chances considerably.

The Franchise Council of Australia estimates that 98% of franchisees renew for a second term in the role. With a typical term lasting seven years, this compares favourably with the relatively high failure rate of new start-ups over the same period.

Your franchisor will provide you with the premises, tools, training and marketing support vital for your business. The initial capital outlay, beyond the franchise fee, can be far less than if you started a similar business yourself.

There are multiple advantages of being linked to a franchisor. You can tap into their bulk buying and negotiating power, allowing you to get stock more cheaply than you normally would.

You will have access to their patents, copyrights and inventions, as well as their research and development projects. You’ll also have the advantage of immediately falling under the umbrella of an established brand, rather than spending months and years slowly building up your own brand credentials.

Perhaps most importantly, you will have a franchisor to provide guidance, advice and ideas. An entrepreneur’s life can be a lonely one, with no-one to turn to for support. As a franchisee, you have someone who has seen and done your business all before on the other end of the phone, should you need him or her.

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Franchising generally comes with many promoted ‘promises’ and when they are delivered franchising is a great investment and an efficient business model. Many prospects allow the ‘glitz and glam’ carried in the sales pitch to turn interest in a franchise into an emotional joyride rather than sophisticated business decision making process.

The promises key promises centre on support and training, brand buying leverage, brand advertising benefit and a healthy collaborative relationship with fellow franchisees and the franchisor.

When the ‘promises’ are not delivered it either indicates a poor quality franchisor or a rogue franchisor. Franchisees must understand that they are capitalizing the franchisor’s dream for a fixed term. There are no perpetual franchises and renewal of contract is not a given.

There are franchisors with a long history where franchisees renew many times. There are also franchisors with a long history of turning over franchisees regularly and often within the term of the contract where such a result can relate to a breach of contract or financial failure.

Once a prospective franchisee truly understands the extremes of risk and the consequences of non-compliance or failure for any reason that is when they should begin extreme due diligence. There can be many advantages to a franchise but they must be more than words.

Ray Borradale , February 10, 2011