10 Pros and Cons of Trying to Profit With a Franchise

If you have all the makings of an entrepreneur — but have no business experience, and no clue where to start — a franchise might be the solution.

A franchise is essentially a ready-made business. The franchisor — the company that grants the franchise — gives you the product and trains you.

As a franchisee, you can focus your energy in an area that interests you. Franchises exist in every sector, including:

  • Convenience stores
  • Fitness centers
  • Hair salons
  • Restaurants
  • Bars
  • Car washes

There are many pros and cons of owning a franchise. First, we’ll highlight the good things. Then, we’ll run through some of the challenges:

Pro: You can piggyback on others’ success

Nonwarit / Shutterstock.com
Nonwarit / Shutterstock.com

A franchise is essentially a ready-made business. In exchange for your investment, the franchisor gives you a proven product and often provides training and advertising. Sometimes, it also assigns you a location.

Your contribution is time, money and labor.

Pro: You can choose from various business types

Blueguy / Shutterstock.com
Blueguy / Shutterstock.com

Whether you want to serve tacos or offer in-home care for seniors, there is a franchise for you. Here are the top five in Entrepreneur Magazine‘s Annual Franchise 500 rankings for 2018, and the initial investment required:

  1. McDonald’s: $1 million to $2.2 million
  2. 7-Eleven: $38,000 to $1.1 million
  3. Dunkin’ Donuts: $229,000 to $1.7 million
  4. The UPS Store: $178,000 to $403,000
  5. RE/MAX LLC:: $38,000 to $225,000

Not sure how to come up with that kind of money? Money Talks News founder Stacy Johnson offers up his advice in “Ask Stacy: Where Do I Find the Money to Start a Business?

Franchise business owners can choose to go with a new company or an established brand. Established companies may have a more polished plan, a greater customer base and a proven track record to offer to its franchisees. On the other hand, new franchisors may be especially invested in ensuring that their first few franchises succeed. That could mean more one-on-one attention and assistance in getting your business off the ground.

Pro: No business background? No problem

 Sorbis / Shutterstock.com
Sorbis / Shutterstock.com

One of the biggest benefits of a franchise is that it offers a turnkey way to start a business. New owners don’t need an MBA either.

The first step to becoming a franchise owner is to contact companies that interest you. Typically, you’ll spend a full day getting a feel for a company. Then, the company will vet your financials and background. If everything checks out, the company will formally present you with a franchise agreement.

Pro: You can earn a decent income

 Sorbis / Shutterstock.com
Sorbis / Shutterstock.com

You may not get rich, but chances are good you’ll make a decent living. On average, franchise owners earn $60,000 a year, according to the jobs website CareerBliss. Of course, that means many franchise owners make more — and many make less.

Pro: You’ll enjoy training and support

goodluz / Shutterstock.com
goodluz / Shutterstock.com

A good franchisor should provide assistance with:

  • Daily operations
  • Marketing
  • Location scouting
  • Training
  • Customer base development
  • Market analysis

This isn’t to say a franchise owner simply has to show up and count the money. Owners are responsible for growing their businesses, but franchisors should provide blueprints to make that growth happen.

Con: You’re following a template

 Takamex / Shutterstock.com
Takamex / Shutterstock.com

If you envision yourself in a business in which you have the unfettered ability to do what you want, skip a franchise.

Businesses operated under a franchise model often have to follow specific guidelines when it comes to marketing, pricing and operations. In addition, they may be limited to operating and advertising in a specific area. And if you want your business to grow, you may have to buy another franchise location to do so.

Con: Upfront costs can be high

Volodymyr Goinyk / Shutterstock.com
Volodymyr Goinyk / Shutterstock.com

There can be steep costs associated with starting a franchise, including costs you wouldn’t have with your own business — like the price of buying into the company.

You’ll probably need to go without a salary while you receive training, set up the business and hire employees. Once you finally take in money, you’ll face expenses like payroll, rent, utilities and repaying any money you borrowed.

Your initial goal should be simply to generate enough income to cover your costs, meaning that it could be a while before you can take a salary.

Con: You share your revenue

 Rawpixel.com / Shutterstock.com
Rawpixel.com / Shutterstock.com

One feature of the franchise business model is that franchisees must share their revenue with corporate headquarters.

Con: You must be all in, all the time

Jes2u.photo / Shutterstock.com
Jes2u.photo / Shutterstock.com

Being a business owner is an exciting prospect, but don’t make big plans for your spare time just yet. You might be saying goodbye to the 9-to-5, but you could be saying hello to the 5-to-9. That would be 5 a.m. to 9 p.m.

Con: You may not be cut out for it

pathdoc / Shutterstock.com
pathdoc / Shutterstock.com

You don’t have to be an extrovert, but depending on the business you choose, it will likely help you a lot. Many franchise businesses require a lot of person-to-person contact. Sales, marketing and schmoozing with customers and suppliers may be a larger part of your work than you imagine.

Have you explored franchises as a business option? Share your experiences with us in comments below or on our Facebook page.

Marilyn Lewis contributed to this post.

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