RSM South Africa

Owning a franchise - good idea or bad idea?

Being in the career I am in and also having had the privilege to be quiet extensively involved in the franchise industry, I have often been asked whether it is a good idea to open a franchise or not. Hopefully this article will clarify certain of the advantages and disadvantages of owning your own franchise and clear up any questions you might have.

When it comes to starting your own business, many people consider buying a franchise as an easy way to make a success. While this could be correct, not all franchises are the same, and not everyone is cut out to be a franchisee.

Here are the advantages and disadvantages of owning a franchise and what to expect.

Advantages of owning a Franchise

  1. More likely to succeed - When you buy a franchise, you are buying an established idea or brand that has already proved to be successful. It is shown that franchisees stand a much better chance of success than people who start their own independent businesses.
  2. Help with getting set up and continuous help - You get a lot of help setting up your franchise and running it afterwards. When you buy a franchise, you get all the equipment, supplies and training you need to start the franchise.
  3. Make money - A franchise business can be very profitable.
  4. Well known brand - Many well-known franchises have very wide brand-name recognition. When buying a franchise you are almost guaranteed to have an immediate customer base.
  5. Franchisor buying power – Your franchise will have the benefit of lower costs due to the bulk buying opportunity and benefits available to the franchisor that would be passed onto you as franchisee.

Disadvantages of owning a Franchise

  1. Minimal flexibility – One of the main disadvantages of buying a franchise is that you have to do it the franchisors way. There is not much room for you to make your own decisions.
  2. Franchise fees – Other than your initial joining costs, one of the biggest ongoing costs are the franchise fees that are payable to the franchisor on a monthly basis. This is usually based on a percentage of your franchise turnover.
  3. Lack on ongoing support – Even though many of the franchisors offer ongoing support to their franchisees, there are those who only assist with the set up and then leave you on your own.
  4. Highly competitive – Be careful of buying a lesser known franchise. Just because a business is offering franchise opportunities, doesn’t mean that there is any guarantee that the franchise you buy will be successful. There are many franchises out there and everyone wants a “piece of the pie”.
  5. Initial costs of buying a franchise - Buying into well-known franchises are very expensive. You will need to have your own capital to contribute and will, in most instances, require further funding from a financial institution.

 

Is owning a franchise for you?

Is there a franchise out there for you? Buying a franchise is like buying any other business, it is important to do your due diligence and investigate the franchise properly. However, if you are the right sort of person for a franchise operation and pick the right franchise, being a franchisee can indeed be the path to success.

Michael Steenkamp

Audit Partner