Buying a Franchise Pros and Cons: 11 Things to Consider

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Buying a Franchise Pros and Cons: 11 Things to Consider

Do you like the idea of running your own business but aren't too keen on building a new brand, product and reputation from scratch? Buying a franchise might be the right move for you.

Becoming a franchisee isn't a decision to take lightly, though. If you want to buy a franchise, be sure to consider the most crucial pros and cons before pulling the trigger.

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How to Buy a Franchise: The Basics

Not sure how buying a franchise works? Not to worry — the whole process can be broken down into five straightforward steps.

1. Research Franchises and Choose Your Favorite

There are hundreds of thousands of franchise locations in the United States (nearly 800,000 as of 2022, to be exact).

us-number-of-franchises

Source

Translation? You have a lot of options to choose from.

Start by researching some of the largest and most popular. For instance, Entrepreneur's list of the top 10 franchises includes:

  1. Taco Bell
  2. The UPS Store
  3. Popeyes Louisiana Chicken
  4. Jersey Mike's Subs
  5. Culver's
  6. Kumon
  7. Planet Fitness
  8. Servpro
  9. 7-Eleven
  10. Tropical Smoothie Cafe

You can also look up franchise opportunities in your state to find options close to home.

With the sheer variety of franchises in industries ranging from travel and weddings to education and fast food, you're bound to find something that suits your interests and area.

Pro research tip: Try getting in touch with current and former franchisees — they're sure to give you valuable insights.

2. Scout Locations

Once you've decided which franchise you want to buy into, you can move on to scouting potential locations for your business.

If there's already a franchise location for sale in your area, you can skip this step entirely and simply purchase the existing business if you'd like.

But if you're going to be starting from scratch, you'll need to look at local commercial real estate listings and familiarize yourself with the market.

3. Figure Out Financing

Next, get ready to crunch some numbers and figure out your financing situation.

Depending on the franchise you're buying, you might not even need much financing — some of the cheapest franchises require an initial investment of just a few thousand dollars.

But if you have your sights set on a more expensive option, you'd do well to consider other funding sources. These can include:

  • Traditional bank loans
  • Loans from the U.S. Small Business Association (SBA)
  • Business lines of credit
  • Alternative lenders
  • Loans from friends and family

4. Apply to Buy

Here's where it all gets real: Officially applying to buy a franchise.

The exact process will vary depending on the franchise you've chosen, but it will generally include something called a Discovery Day. This will occur after you've applied but before you sign the final paperwork.

On Discovery Day, you'll go to the franchise's corporate offices, hear an impressive sales pitch and see the best features the company has to offer.

If Discovery Day goes well, all your finances are in order, and you feel ready to take the plunge, it's time to sign on the dotted line.

5. Get Trained and Prepared

The last step in purchasing a franchise is also one of the most exciting: Completing franchisee training and getting ready to open your doors.

Corporate headquarters will provide you with everything you need to get started — all you need to do is focus on learning their guidelines, getting to know the brand inside and out and running the best business possible.

Buying a Franchise Pros and Cons: What to Consider Before You Buy

Purchasing a franchise is a big decision, so be sure to think about these 11 advantages and drawbacks before signing any contracts.

1. Pro: Instant Brand Recognition

One of the best parts of buying a franchise is that you don't need to worry about establishing a brand and getting in recognized.

That's because most franchises have already achieved high levels of brand recognition, sometimes on a national or even global scale.

2. Con: Limited Creativity

If you're a creative type and enjoy coming up with your own designs, products and processes, then you may not be a fan of some of the limitations of franchise ownership.

For example, even if you're a talented graphic designer and have a killer idea for a new logo, you'll still be stuck with the logo chosen by corporate.

3. Pro: Skip the Trial and Error

One of the biggest challenges of entrepreneurship is figuring out what kind of product or service customers will actually be willing to pay for.

The advantage of franchise ownership is that you don't have to worry about any of that. As a franchisee, you'll be selling a product or service that's already proven itself desirable, and in some cases, you'll already have a built-in customer base.

4. Con: Potentially Pricey

Although some franchises come with an initial price tag of just a few thousand dollars, that's still a significant amount of money.

And depending on the franchise you choose, that amount can be much higher — McDonald's, for example, requires potential franchisees to have at least $100,000 in unencumbered funds.

In other words, buying a franchise can be costly, so be prepared for that possibility.

5. Pro: Top-Tier Training

Buying a franchise doesn't usually come with any educational requirements, and that's because franchisors provide comprehensive training to their franchisees.

Whether you purchased a restaurant franchise and need to learn about food preparation, or you purchased a fitness franchise and need to be trained on gym safety, your franchisor will have you covered.

6. Con: Following the Rules

Many franchisees love that their franchisor provides training and education, but some may not like the idea of following someone else's rules.

Some of those rules require handing over a significant amount of revenue, too — for example, many franchisees have to give their franchisor 5-6 percent of their earnings.

7. Pro: Easier Marketing and Advertising

A recurring hurdle of owning your own business is coming up with effective yet affordable marketing and advertising tactics.

But as a franchise owner, you'll have access to all of your franchisor's marketing materials, tried-and-true techniques and other resources. And as an added bonus, your business can benefit from any national ad campaigns your franchisor launches.

8. Con: Tied to the Brand's Image

If your franchisor finds themselves embroiled in controversy (or simply releases a lackluster ad campaign), you may find yourself paying the price in the form of reduced sales or even a damaged reputation.

Case in point: Even though a widely-publicized lawsuit regarding the contents of Taco Bell's seasoned beef was ultimately dropped, its sales (and therefore those of its franchisees) still suffered.

9. Pro: Opportunities for Expansion

Scaling a business up tends to be much more challenging for independent business owners than it is for franchisees.

That's because franchisors like it when their franchisees succeed, expand and bring in more revenue, so they provide plenty of opportunities for successful franchisees to grow.

10. Con: Corporate Scrutiny

If a franchisee is not-so-successful, however, they may find themselves the subject of unwanted attention.

For instance, many franchisor-franchisee contracts include a clause stating that the franchisor can terminate the agreement for a number of reasons. According to some law firms, the most common reason for termination is failure to pay royalties.

Whatever the case, the fact remains that your franchisor will be continually evaluating your performance, and that can be a downside for some.

11. Pro: Beginners Welcome

While some franchisors like to prioritize franchisees that have prior experience owning a business or managing a team, many don't require any professional experience at all.

So as long as you can come up with the funds needed to buy a franchise location, you likely won't need to worry about whether you have enough experience.

Questions to Ask Before Buying a Franchise

One of the benefits of buying a franchise is that there's no rush — the franchisor is already established, and it'll still be there when you're ready.

So be sure to take the time to ask a few crucial questions before making a final decision:

  1. Where will your franchise be located?
  2. If you don't have a set location yet, will your franchisor help you find one?
  3. What will the training program entail, and how long will it take?
  4. Does your franchisor offer ongoing training and education?
  5. What types of franchises have proven to be successful in your area?
  6. What types of franchises haven't been successful in your area?
  7. What other businesses will you be competing with?
  8. Does your franchisor have the resources necessary to support you and all its other franchisees?

There are plenty more questions you can ask to reach the best decision possible, but those are sure to get you started on the right track.

Buy a Franchise Like a Pro

Purchasing your own franchise and officially becoming a franchisee can be intimidating, but it can also result in a steady stream of profits. As long as you consider all the pros and cons and carefully evaluate your own wants and needs, you're sure to come to a decision that's right for you.

And remember, you don't have to embark on your franchising journey alone. Subscribe to our blog to join our community of more than 500,000 entrepreneurs, dreamers and franchisees like you.

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