There are many disadvantages to buying a franchise, including the initial cost, having to strictly adhere to corporate guidelines, and making ongoing royalty payments to the parent company.
There are several disadvantages to buying, owning, and managing a franchise. The top 7 disadvantages to buying a franchise are outlined here.
The money you’ll have to obtain to start a franchise can be quite steep. Many franchises cost $50,000 or more to purchase. In addition, you’ll have to purchase equipment, purchase and manage inventory, and lease a building or a space in a strip mall.
You’ll have to follow a long list of guidelines, and you’ll have to follow them to the letter. These restrictions can limit how you can advertise, what you must charge for the products you sell, and how much of an ingredient you can put on a food product. Some people are better at following these guidelines than others, and thus are better suited to be a franchisee.
Lack of Guidance and Support
While guidance, support, and training can be an advantage, lack of such tools quickly becomes a disadvantage. Most larger companies offer plenty of support and access to resources, but smaller companies may not.
Ongoing Royalty Payments
A company has to make money on their product. When they sell franchise rights, they earn a royalty on each store. It’s up to the franchise owner to make these royalty payments.
Limited Growth Potential
If you own a franchise, you own one business that's governed by someone else. If it’s a Subway restaurant, you’re only ever going to have so many customers. In contrast, if you own your own successful business, you can grow, hire more employees, and perhaps eventually even offer your own franchises. If you really want to grow a business, you may be better suited for a family business you create.
If a Wendy’s patron claims to have found a severed finger in their hamburger, and you happen to own a Wendy’s franchise, you can expect your business to suffer. Even though your restaurant is not guilty of the offense, you will be deemed guilty by association.
It’s Your Headache
You have to interview and hire your own employees. Often, as in the case of fast food restaurants, your employees will be new to the workplace. They may have difficulty performing the duties of the job, acting and dressing professionally, or arriving on time, for instance. When an employee doesn’t come to work, you’ll have to step in or find someone else to take their shift. Some franchises only require one employee during certain times of the day, and if that employee doesn’t arrive at work, you’ll be the one to take over.
Be sure to check out the other franchise advice resources available here on Bright Hub's Entrepreneurship channel. Learn about the top industries with franchise opportunities, get advice on when you can break a franchise agreement, and much more. New and updated items are added on a regular basis, so bookmark us and check back often.
Advantages and Disadvantages to Buying a Franchise
Uncover the top seven advantages and disadvantages to buying and owning a franchise in this article series. Is franchise ownership right for you?
- The Top 7 Advantages to Buying a Franchise (Pt 1 of 2)
- The Top 7 Disadvantages to Buying a Franchise