The Two Biggest Disadvantages of Franchising
Are you sick of people talking all the time in the franchise community, about the advantages of franchising? In today’s article, I’m gonna go just through the disadvantages of franchising in the United States.
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Costs - Disadvantages of Franchising
One major drawback is the cost associated with opening and maintaining a franchise business. You have the initial franchise fee that can range anywhere from $20,000 to $80,000. Then, for each additional location that you wanna open, you’re gonna pay some percentage of that fee.
Time - Disadvantages of Franchising
One of the main disadvantages of buying a franchise when you compare a franchise to an existing business you are considering buying, consider the time it takes to open the franchise business. As well as past break even. Now, for a service-based concept like real estate property management or commercial cleaning, it could take you just a couple months to open. It can take several months just to open a service-based concept like real estate property management or commercial cleaning. Then it may take another three to six months before reaching break-even point where profit can be generated.
There are some consequences when you consider the alternative of buying an existing business that’s up and operating. If you’re thinking about opening up a franchise restaurant, it could take you up to a year to secure the lease, do the build out, get the permits to open. When considering alternatives such as buying an existing business that’s already operating, there are consequences involved. For instance, if you plan on opening a franchise restaurant, it could take up to a year just securing leases and permits before even starting construction. And then there’s another potential six-month period until reaching break-even point. This means 18 months could pass without any returns on your investment or capital allocation towards this project. So, that could be 18 months for a franchise restaurant where you’re just spending money and you’re not receiving any returns from your time and the capital that you’re allocating to that project.
Limitations - Disadvantages of Franchising
You can’t really change the product and service all that much. You’re signing up to really focus on the financials of the business, managing people, hiring people. Making sure to monitore the KPIs and the Key Performance Indicators, on a daily, if not weekly, basis. Basically, how you as the owner can focus on increasing the sales and increasing the profit of the business.
You’re generally not focused on vetting suppliers, creating the product. That’s generally the responsibility of the franchisor. You as the franchisee are hiring and firing people, trying to grow the business. Maybe secure a new lease to open up your second or third location. But you’re not creating products, you’re not revolutionizing how to serve the consumer. You’re not signing up for other third-party delivery apps. Generally, that’s all gonna be handled from the franchisor.
So, a big disadvantage for those entrepreneurs that really like to innovate is you can't with the franchise system.
Is it profitable to open a franchise?
The two major franchise disadvantages are cost, time, and money it takes to open the location and break even. And then, limitations in terms of how you can innovate your own business. However, opening a franchise opens new roads to even being a citizen of the United States, and you can learn how to on our sister company Visa Franchise.
