Feb
Downside of Franchising
Owning a franchise can seem like an exciting chance to go into business for yourself. Franchisors often present their franchises as just such an opportunity. Truthfully, franchising does offer some remarkable benefits for the investor looking into ownership for the first time.
Is franchising all that it’s cracked up to be, though? There is certainly a lot of talk about the many benefits of franchising, such as franchisor support and brand recognition. While these aspects of franchising definitely do increase an owner’s chances for success, they do come at a price.
Many new investors may see the cost of entering into a franchising arrangement with a franchisor as well worth it for the increase security and improved chances of success. However, in time, they may come to regret their decision to become contractually obligated to a company that exercises so much control over individual franchises. In many ways, franchise ownership takes much of the control away from individual owners and puts it into the hands of the parent company.
This loss of control over the business can lead to a high degree of dissatisfaction for the franchisee over the course of running the business. Having to remain accountable for every action, having to conform to brand standards and having to pay ongoing fees can leave the franchisee feeling more like an employee of the brand than an owner. This unrest among franchisees is one of the leading causes of conflict between franchisors and their franchisees.
When a new franchisee first enters into an agreement with a franchisor the involvement of the franchising organization may be very welcome. As the franchisor helps with start-up and training the new owner to successfully run the franchise, the franchisee may feel that he or she is getting his or her “money’s worth” from the franchisor. In fact, the franchisor does play a very critical role in the success of the franchisee, especially during those critical and precarious first few years.
Over time, as the franchisee learns to run the franchise more and more without relying on the franchisor, then that level of involvement can begin to seem more like an infringement into the owner’s business than a positive component of success. Just because the owner becomes more sure of his or her ability to handle the day-to-day management of the franchise without need for constant franchisor involvement does not mean the franchisor will back off. On the contrary, it is in the franchisor’s interest to retain a close eye on the operations of all franchises.
Franchisors monitor their franchisees closely to ensure that the standards established by the brand are upheld. Franchisors also tightly regulate franchises to make sure that they are meeting their maximum potential for profitability. Though this benefits both franchisor and franchisee, it can become a source of friction.
There is only one way to avoid franchising remorse. This is to thoroughly research a franchisor prior to entering into an agreement. Only by finding out what level of involvement the franchisor will have can a potential investor make an informed decision about whether or not it is worth it.