Many business owners result in buying a franchise due to many practical reasons and benefits. It has proved to be an effective business model that results in win-win situations for both parties, the franchisor and the franchisee. As an entrepreneur, you want to successfully thrive in managing your franchise business for as long as possible. However, like any regular business, franchise business also comes with trials and downsides.
Some people might not know the logic behind how franchising works, but each company has its rules and regulations that franchisees must commit to. At a glance, a famous chain restaurant or branded store might seem perfectly running smoothly, but there are things you need to be aware of before finally deciding to invest in franchises under 20k. It’s sound advice to consider both good and bad before leaping into a financial investment.
Here are the common problems to anticipate as a franchisee and some recommendations to solve them:
1. Expensive Operating Costs
To get a franchise off the ground, prospective franchisees need to come up with a large amount of money. Aside from the franchise fees, you need to shell out more costs for location, equipment, utilities, manpower, and others. The opening costs and licensing fees can quickly amount to six figures or even more.
This would depend on the franchise business you’re buying, though. Some might not require six-digit amounts, but one thing is definite: you’ll have to pay royalty fees, which is the amount that the franchisor gets from your monthly sales. The percentage will vary depending on the franchising business and your contract with them.
How To Solve It:
Franchisors typically require royalties and fees to reach a franchise agreement. As an alternative, you can shop around for the best prices from contractors and renovators in your area to mitigate your opening costs. Another thing is to find a franchisor that charges lesser royalty percentages, for instance. Also, consider buying an existing franchise instead of opening your own, resulting in lower renovation and remodeling expenses. There might be some current franchise owners who’d want to resell their contracts already.
2. Limited Decision-Making Power
It’s straightforward for independent restaurateurs to establish a unique position in their local community by defining their theme and modifying their menu as they see fit. Unfortunately, as a franchise owner, you won’t have the same power. The franchisor usually sets up a uniform business operation guide, in which every branch should follow the same products and services, same menus, same equipment, and so on.
Even for marketing promotions and advertisements, the franchisor also calls the shots, and you as a branch owner will have to follow through to these new promotions. One disadvantage of being a franchisee is you have limited decision-making power.
How To Solve It:
This is another franchise issue that’s difficult to solve unless you change your mindset. The key is to be aware of this setup even before you commit and sign into the contract. This is a common tendency for franchising agreements, so if you want to be your own boss and prefer to decide everything about your business, it’s best to open your own brand instead.
Weigh the reasons to open a franchise business and see which one appeals to you more. You should keep in mind that franchisors always want to maximize profits; if they create promotions and changes to the operations, this means they’re seeking ways for money to come into your business.
3. Lacking Support For Franchisees
New franchisees will need help planning and scaling the proper infrastructure, especially at the beginning of operations. While this tendency doesn’t apply to all franchisors, some fail to provide concrete support to their new franchisees. Consequently, the franchisor is unable to handle business growth once new franchisees join.
Depending on different issues with the business, some franchisees would complain about the lack of support they get. Whether it’s related to a website, a branch operation activity, or supplies, this is something that franchisors need to iron out more. However, it’s worth stating that this would depend on the franchise company because some are pretty hands-on and supportive to all their franchisees.
How To Solve It:
The franchisor must make sure they can be capable of meeting the demands of business growth. They can develop a team that supports franchisees so that the business won’t fail in helping their branches operate smoothly and successfully. This way, all their branches will run without glitches, and they can establish stronger franchisor-franchisee relationships.
Conclusion
Launching a franchise takes a lot of effort, and having the correct strategy is critical to its success. While being a franchise owner yields a lot of advantages and significant potential profits and returns, it’s best that you also know the other side of the fence. By being aware of the list above, you’ll be able to decide better whether a franchise agreement would be suitable for you.
