WEALTH MANAGEMENT: PROS AND CONS OF BUYING INTO A FRANCHISE

by | Jan 10, 2022 | Growing Your Money, Wealth Management

Franchise stores have a lot of clout in the business world. They give a safe and already-known name to a company with an already successful track record. That allows companies that would otherwise be unknown to expand their reach into new areas.

Related: Tangible investment ideas to build your wealth

What are the pros and cons of opening a franchise store? And what are the differences from those of an independent operation?

What is a franchise? How does it work?

A franchise, in general terms, is when one party sells its business method to another party.

Buying a franchise pros

One of the main pros of opening a franchise store is that customers can rest assured they will get a certain standard in products and services. That makes it much easier to attract them.

Another pro is that many franchised businesses are known by their brand name alone – McDonald’s, for example – making it easy to expand into new markets.

Buying a franchise cons

Many franchises require that their name remains in the store title, or they’ll charge you. Similarly, many will want a say in pricing. However, a big con of a franchise is that you’ll have to pay a pretty penny for the privilege. You will have to pay a royalty on every sale an employee makes, usually around 7-15%. But they can sometimes demand special terms and conditions.

Own business pros

One of the biggest pros of owning your own business is that you’re not tied down to terms and conditions set by someone else. But if you go independent it means putting in a lot more effort into increasing sales and marketing to get customers through the door. Then again it’s much easier for you to set your terms.

Own business cons

A con of opening an independent store over a franchise is that firstly there’s much more competition. That makes it harder to sell. Second, the fact that you’re not tied down means that it will be much harder to get funding should you need any help.

A typical store setup includes:

  • Shopfitting: Retailers typically need to choose shopfitting concepts and fixtures to create a store design that will produce the required sales volume while providing customer comfort and a good shopping experience.
  • Store Fixtures: A store fixture is a physical component of a retail outlet that holds goods for sale, provides information to customers, or otherwise enhances their shopping experience. The most common store fixtures are shelves and tables. However, many other institutions, such as those used for promotional purposes, like banners and posters.
  • Staffing: A successful retailer will need to have good staff with the right skills and experience. Retail employers need to decide what type of staff they require, how much they should be paid, and where to find them.
  • Payment processing: Processing credit cards seems like a simple task, but there is much more involved than simply swiping the card and handing it back to the customer. Retailers need to choose card readers to accept payments and then use their expertise and advice to avoid the many hidden charges that can arise from this process.
  • Insurance: Retailers need to ensure that they have the correct levels of business insurance in place before they open their doors. There are many types of insurance which they need to consider, including product liability and errors & omissions insurance.

Buying a franchise

Opening a franchise store is great because of the fact you get to use an already successful brand name and product, but you’ll have to pay for it. To go independent, however, will require much more effort but gives the advantage of choosing what you want. Going independent should be considered when you’re unsure whether or not to open a franchise store.

Photo by Andrew Neel from Pexels

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