Benefits and Drawbacks of the Franchise Business Model

Purchasing a franchise venture is an excellent business opportunity. However, franchise ownerships have several aspects that you must consider before committing yourself to this business model. In case you are seriously contemplating purchasing a franchise, do consult a business broker, a Toronto franchise lawyer or a franchise consultant first. Here are the pros and cons of franchising that will help you decide if this is the way to go.





Benefits of the franchise model





Buying into the brand – Whether you launch a new franchise location or purchase an existing franchise offered for re-sale, typically the venture will already have brand equity and this carries a lot of market value via a recognized name. This is one of the franchise concept’s biggest benefits.





Support – Buying a regular business can be a nightmarish experience, full of uncertainty and fear. However, a franchise venture enjoys the benefits of established operating systems, training and support from the franchisor. All this helps you as you embark on such a new venture and increases your probability of success.





The business risk is typically lower in the franchise system – The franchise business model is typically a proven and successful one. The concept calls for merely replicating the successful model across various locations.





Obtaining finance for a franchise may be relatively easier – Many Canadian financial institutions are more willing to extend loans to a franchise business than a regular "one-man-show" or partnership business. This is because the perceived risks are lower with ‘tried and tested’ franchises.





Drawbacks of the franchise model





You do not have complete control over the business - One of major issues that an entrepreneur faces with the franchise model is a lack of control over the business. In this model, the franchise is just one in a group and has to follow certain rules to meet the franchise’s criteria. Sometimes even the lease to the business premises may not be held by you. Often it is held by the franchisor and is in turn sub-leased to you. These are issues that must be examined thoroughly by your Toronto franchise lawyer.





Site approval – Certain franchisors will have the final say in approving the site you have selected to establish the new franchise. Approvals are frequently at their discretion.





Your commercial turf is predefined – In the franchise model, typically you will be allowed to do business only in a predetermined territory. This is to ensure that you do not encroach on the business interests of another franchisee.





Advertising fund and royalties – When you become a franchisee, it typically involves paying the franchisor a royalty on the sales made. Often the royalty must be paid even when the business does not bring in profits. Franchisors also frequently charge a percentage on sales toward an advertising fund.





Other fees - Some franchisors will charge you an initial fee when you purchase the franchise. Others charge a fee when you sell the franchise. These fees can amount to several thousand dollars. Review every franchise contract and document minutely with the help of a lawyer and thoroughly understand what the legal implications are.





Franchising is a wonderful opportunity but may not be suitable for everyone. To reiterate, it is advisable to talk to several franchise professionals before making the all-important decision to invest in a franchise business model. There are many knowledgeable individuals in the industry and you can consult, among others, an existing franchise holder, a Toronto franchise lawyer and a franchise consultant.





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