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What are the disadvantages of buying a franchise?

The reasons that make a franchise so attractive to some can prove to be a turn-off to others. Being a franchisee requires a certain type of mindset and personality. Certain processes need to be followed closely.

“Free-wheeling, maverick personalities aren’t compatible with the systems of being a franchisee,” says Steve Wright, executive director of the Franchise Council of Australia. “A franchise needs consistency to have brand consistency and some franchisees run into trouble when it comes to this.”

You may be living your dream of running a business but, ultimately, it isn’t your dream. It’s someone else’s idea that you’re replicating.

This isn’t a problem for many people but be aware of how you’ll feel about this situation before you commit to it. While most franchisors are hands off, you won’t be able to make radical changes to your business without their input.

The relationship with your franchisor is also critical. The competence and personality of your franchisor may only reveal itself over time, so you may feel stuck with someone incompatible once you’ve started up.

Conversely, some franchisees become too dependent upon their franchisors. This is never a healthy situation, especially if the franchisor makes mistakes or feels that he or she can’t cope with the burden of having an overly-needy franchisee.

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Comments (2)

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I recommend extreme due diligence and particularly on the relationship that exisiting and past franchisees have or had with the franchisor. The consequences of signing a contract with a rogue franchisor can be extreme where the risk of conflict can claim the business and the family home but the legal costs can drive a franchisee into bankruptcy.

Prospective franchisees should also be aware of confidentiality agreements that may exclude franchisees from freely sharing opinion. In the worst systems confidentiality is policed to ensure any franchisee damaging the brand can be identified.

Existing franchisees of a rogue system understand the financial and contractual power imbalance and the conseguences of termination or a debt laden non-renewal.

New investors must ensure that a competent experienced franchising accountant reviews the franchisee financial model understanding the need to ensure the required return on investment and importantly within the term of the contract. New franchise investors should not rely on any lawyer other than a franchising specialist lawyer review the contract.

Advisers must know what a 'red flag' is. This is not work for the franchising amateur.

Ray Borradale , February 10, 2011

Thinking of buying a franchise?

Why not? Many offer good opportunities if the franchisee has the right skills and basic business accumen. But not all are good and a handful even practice unethical business approaches. For totally free advice (no selling) visit http://www.cdicorp.info

BobStewart , May 12, 2011