Franchising – Some Negative Aspects

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Although many people enjoy the benefits of franchising, there are still several disadvantages that a prospective franchisee needs to be aware of.

Buying into big and popular franchises is expensive. Their track record does not need much investigation since their outlets are most likely in every major town and city in the country, sometimes even abroad. Their popularity with consumers speaks well of the profitability of the brand. However, a prospect eyeing such franchises must be ready with a large amount of money or be able to make the necessary financial arrangements since the franchising fee alone can command a hefty price.

On top of the original franchise fee, royalties and a percentage of business revenue of the franchise must be paid to the franchiser every month. In addition, the franchiser may also charge fees for the cost of advertising and promotional materials. These will be stamped in the franchise agreement.

On the other hand, buying a little-known and occasional inexpensive franchise can be attractive especially to those who would like to start their own business but do not have the kind of money needed to buy a popular one. Prospects need to be aware, however, that just because a business is offering franchises is no assurance that its franchises will be successful. In some cases, franchising itself is the business of the company. In this case, the franchisor is only interested in selling as many franchises as possible regardless of whether the individual franchises will be successful or not. However, this is not to say that little-known inexpensive franchises are not worth looking into. Some of these may even prove to be a sound business concept that has just started. Therefore, all franchises, whether popular or little known, must be investigated carefully before making a final decision.

In franchising, although the franchisee owns the business, he is not an independent entrepreneur. He must follow all of the instructions of the franchisor, sometimes down to the smallest details, to ensure uniformity with all other franchises. Franchising does not allow the franchisee much control over his business because he has to adhere to an agreed method of operation. A tightly written franchise agreement gives the franchisee little latitude to deviate from the system of the franchisor. Some people may not be able to live with this arrangement for extended periods because the restraints being imposed by the franchisor may be too limiting for their own personal style. This is the reason why it is important for a prospect to match his intended business with his personality, preferences, and style.

There is always the possibility that conflicts between the own outlets of the franchisor and those owned by franchises may occur, particularly if they are serving the same general area. One may cut into the customer base of the other and franchisor and franchisee will absolutely be competitive against each other to some extent. It is also possible that there are too many franchises of the same brand in one area that franchises are pitted against each other. This scenario happens when the franchisor did not give much consideration to market studies but only to the financial gain with many franchises.
Factors such as interest rates, willingness of banks to extend loans to franchises, the condition of the national economy, and competition come into play once a business starts to operate. The franchisee must be financially prepared to absorb the negative impact of these factors.

An inevitable aspect of franchising is the conflict that may arise between the franchisee and franchisor once the former starts losing money. More often than not, the conflict results in litigation, something that will be costly to both parties in terms of both time and money. Tremendous efforts and resources on the part of the franchisor are needed to ensure the success of all its franchises. The bad news is that not all franchisors have access to such big resources, since limiting their efforts largely.

Not all franchisors offer the same degree of assistance in starting a business and later on running it successfully. Some provide training just for start-up operations and the franchisee is left on his own after that. Others make assurances of continuous personnel training and support that they do not follow through on.

Deciding to get a franchise is good. However, its potential negative aspects must still be considered and addressed, because to be forewarned is to be forearmed. No franchiser is perfect, so it is up to the aspiring franchisee to objectively assess the profile of the target franchiser, and prepare for all the possible scenarios that might happen in the future.