Franchising lets you run a business using an established brand and proven business model. While it can offer great opportunities, it also comes with challenges. If you're thinking about becoming a franchisee (someone who buys into a franchise) or a franchisor (someone who expands their business through franchising), it’s important to weigh the advantages and disadvantages. In this guide, we’ll break down the key pros and cons to help you decide if franchising is the right path for you.
Top 10 advantages of franchising
1. Established brand recognition
One of the biggest advantages of franchising is that you operate under a well-known brand. Customers are more likely to trust and do business with a recognised name, which can help drive sales from day one. This eliminates the challenge of building brand awareness from scratch.
2. Proven business model
Franchises offer a tried-and-tested business model, reducing the risks associated with starting a new business from scratch. The franchisor provides guidance and support based on a system that has been successful in other locations. This reduces the trial-and-error period and provides a roadmap for success.
3. Training and support
Franchisors typically provide comprehensive training and ongoing support, ensuring franchisees understand the business operations, marketing strategies, and best practices. This support increases the chances of success, particularly for those without prior experience in the industry. Training may include hands-on experience, manuals, and access to business consultants.
4. Lower failure rates
Compared to independent start-ups, franchise businesses often have lower failure rates because they benefit from an established brand, a proven system, and continuous support from the franchisor. Some studies have shown that franchises have a much higher success rate compared to independently owned businesses, making them an attractive option for risk-averse entrepreneurs.
5. Easier access to financing
Banks and financial institutions are often more willing to lend money to franchisees than to independent start-ups because franchises have a track record of success and lower risk. Some franchisors even have partnerships with lenders, making it easier to secure funding for the initial investment and operational costs.
6. Marketing and advertising support
National or regional marketing campaigns are usually managed by the franchisor, meaning franchisees benefit from professional advertising efforts without having to handle it themselves. This includes online marketing, TV commercials, social media promotions, and local advertising, which can help drive customer traffic to franchise locations.
7. Exclusive territory
Many franchise agreements grant franchisees exclusive rights to operate within a specific area, reducing direct competition from other franchisees of the same brand. This ensures that the franchisee has a fair opportunity to build and maintain a customer base without having to compete with another outlet of the same brand in close proximity.
8. Bulk purchasing power
Franchisees benefit from the franchisor’s ability to negotiate bulk pricing on supplies, equipment, and inventory, helping to reduce costs. Since franchisors purchase items in large quantities for multiple franchise locations, they can secure better deals than an independent business owner would be able to negotiate.
9. Operational efficiency
Franchise systems often include detailed procedures and guidelines that streamline operations, making it easier for franchisees to run their business efficiently. Standardised training, software systems, and operational checklists help maintain consistency and reduce the chances of costly mistakes.
10. Higher resale value
Franchise businesses tend to have higher resale values than independent businesses because they come with an established customer base, brand reputation, and proven financial performance. When it’s time to sell, franchise businesses often attract more buyers and command higher prices compared to independent businesses, making them a solid long-term investment.
Top five disadvantages of franchising
1. High initial investment and ongoing fees
While franchising can reduce risks, it often requires a significant upfront investment. Franchisees also need to pay ongoing royalty and marketing fees, which can impact profitability. Additionally, some franchisors require franchisees to invest in renovations, equipment upgrades, or mandatory marketing campaigns, increasing costs further.
2. Limited control and creativity
Franchisees must follow the franchisor’s rules, including branding, pricing, and operations. This lack of independence can be frustrating for those who want full creative control over their business. Franchisees may not be able to make changes to product offerings, business hours, or promotional strategies without franchisor approval, which can limit their ability to respond to local market demands.
3. Contractual obligations
Franchise agreements are legally binding and can be restrictive. Exiting a franchise early or breaching the terms of the agreement can lead to financial penalties or legal action. Franchisees are often locked into long-term contracts that may include non-compete clauses, restricting them from starting a similar business for a set period after leaving the franchise.
👉Learn more in our complete guide to what are franchise agreements.
4. Dependency on franchisor’s success
If the franchisor experiences financial difficulties, legal issues, or reputational damage, it can directly affect all franchisees operating under the brand. For example, if the franchisor makes poor business decisions or fails to adapt to industry trends, it can impact the profitability and sustainability of all franchise locations. Additionally, franchisees have little control over brand-wide decisions that may impact their individual business performance.
5. Territorial restrictions
While exclusive territories are an advantage, they can also limit expansion opportunities. A franchisee may not be able to open additional locations outside their assigned area without franchisor approval. If a franchisee's assigned territory has limited growth potential, they may struggle to scale their business. Furthermore, some franchisors retain the right to establish corporate-owned locations or sell additional franchises in nearby areas, potentially increasing competition within the brand.
💡Tip: If you have a franchise agreement with restrictions that you want to contest, it's always best to seek advice from a dedicated franchise solicitor.
Recap: Top pros and cons of franchising
Pros ✅ | Cons ❌ |
|---|---|
Established brand recognition | High initial investment and ongoing fees |
Proven business model | Limited control and creativity |
Training and support | Contractual obligations |
Lower failure rates | Dependency on franchisor’s success |
Easier access to financing | Territorial restrictions |
Marketing and advertising support | |
Exclusive territory | |
Bulk purchasing power | |
Operational efficiency | |
Higher resale value |
What’s the difference between a franchisor and a franchisee?
A franchisor is the owner of the brand and business system, while a franchisee is an individual or company that buys the rights to operate under the brand name. The franchisor provides training, support, and brand oversight, whereas the franchisee runs the daily operations of their individual business location.
You can learn more in our guide to franchisor vs. franchisee.
FAQ
What are the main advantages and disadvantages of a franchise?
The main advantages include brand recognition, a proven business model, and franchisor support. The disadvantages include high costs, limited control, and contractual obligations.
How much does it cost to start a franchise?
The cost varies widely depending on the brand, industry, and location. Some franchises require a relatively low initial investment, while others demand significant financial resources.
Can a franchisee own multiple locations?
Yes, some franchisors allow franchisees to own multiple locations, but this depends on the franchise agreement and the franchisee’s ability to manage multiple businesses.
Are all franchises the same?
No, franchises vary in terms of industry, investment requirements, operational complexity, and levels of support provided by the franchisor.
Can a franchise agreement be negotiated?
Some aspects of a franchise agreement may be negotiable, but many franchisors have standardised contracts with limited flexibility.
Final thoughts
Franchising offers many benefits, including lower risk, brand recognition, and franchisor support, making it an attractive option for aspiring business owners. However, it also has challenges, such as limited control and financial commitments. Understanding the advantages and disadvantages of franchising can help you determine whether this business model is the right fit for you. If you are considering investing in a franchise, conducting thorough research and seeking legal advice from a corporate lawyer before signing a franchise agreement is essential.
