Is Buying a Franchise Right for You?

Advantages of Purchasing a Franchise
 
The chief advantage in purchasing a franchise is that the franchisee can begin its own business with a higher chance of success than if the franchisee were to start a business alone. This occurs because the chief elements being purchased via the franchise-training, a proven, successful product or business format, and publicly recognized names and marks-permit the franchisee to start successful operations and win public acceptance in a relatively brief period.
 
It is absolutely essential for the franchisee to independently investigate the franchise before buying to be certain it has the promised level of public acceptance and potential success as a business. If the franchisor is new, does not yet have any franchise outlets that have operated successfully for an extended period, presents incomplete franchise documents, or has not perfected the franchise system, even more market research and price negotiation are necessary.
 
Other advantages to a franchisee are greater independence than would be found in working for a company-owned store, an exclusive territory for the franchise business (if granted in the franchise agreement), and broad assistance from the franchisor in training, accounting, quantity purchasing, product pricing, quality control, and personnel supervision (if the franchisor assumes those obligations in the franchise agreement).
 
Disadvantages of Purchasing a Franchise


Potential disadvantages to purchasing a franchise include the following:
 
(1) Significant and sometimes overpowering retention of control by the franchisor concerning conduct of the franchise business;
 
(2) Unfair provisions in the franchise agreement concerning transfers and renewals of the franchise business or concerning dispute resolution or termination;
 
(3) The potential for excessive franchise fees; and
 
(4) The obligation of the franchisee to continue paying a percentage of gross monthly revenues to the franchisor long after the franchisor has ceased to provide any significant assistance to the franchisee and regardless of whether the franchisee is making a profit.
 
Many of these potential disadvantages may be mitigated by the franchisor's interest in the financial success of the franchisee. However, some franchisors do not understand that in order for the franchisor to be successful, the franchisees must also be successful. Some franchisors are more interested in selling a lot of franchises than in helping existing franchisees to be successful.