The Pros and Cons of Buying a Franchise

Franchise Advantages

Whether you’re a seasoned business owner or new to the world of entrepreneurship, buying a franchise can help you meet your professional goals and expand your portfolio. Here are the 10 advantages of franchising a business.

1. Freedom and independence.

If you value autonomy and work-life balance, a franchise provides that in spades. 

“You can choose how much of yourself you want to dedicate to this business: you can work full-time with a few other employees or hire a full team and supervise, check-in, or work part-time,” says Justin Douglas, CEO and founder of Corvus Cleaning, a franchise that provides commercial, office, and workspace cleaning. “You can run a large full-time operation that acts as your sole source of income, or you can simply use your franchise to bring in supplemental income.” 

A franchise opportunity can be designed and shaped to fit your goals and lifestyle. “Anyone who already works during traditional business hours, takes classes during the day, or cares for family members knows how difficult it can be to juggle so many different things at once,” Douglas says. However, with franchises like his, the hours of operation, volume of services, and other particulars can be customized to fit your schedule.

“Also, while it’s not everyone’s motivation, some franchise investors move into franchising to escape the rat race and not report to a boss,” he adds.

2. Brand recognition

When you buy a franchise, you’re purchasing something that is already established. “They’ve established themselves as reliable, credible, and high-quality service providers in the industry,” says Douglas. And the importance of an established brand cannot be underestimated.

“If I asked 100 people the most valuable asset in a franchise, at least half would say the brand,” says Jessica Houston, franchise consultant at Electus Franchise Consulting. “Think about a professional athlete or celebrity like Peyton Manning. He would have instant name recognition if he started Peyton’s Pizzas or Manning’s Sports Camps, but he chose franchises like many others with an established personal brand.” Another example is Shaq, who owns nine Papa John franchises, 17 Auntie Anne’s, and a Krispy Kreme. At one time, he owned over 100 Five Guys Burgers and Fries franchises. 

Using his company as an example, Douglas says Corvus Cleaning has built a trustworthy brand with national recognition. “Our high-quality service, honesty, and reliability are what we’re known for, and if you join us, these qualities will be what you’re known for, too.”

3. Process and infrastructure.

Another advantage of buying a franchise is that you’re not starting from scratch. “You gain immediate access to assets that have already been established by someone in your industry; the franchisor has developed a business model, systems, and procedures that you can adopt and learn from,” explains Douglas.

And this is incredibly important because you don’t have to reinvent the wheel. “You benefit from the work that they put in, their track record, and their success,” Douglas says. But that’s not all you get. “In addition, you’ll benefit from ongoing operational and sales support, access to capital, and a strong support system to rely on when you need guidance.” 

The process and infrastructure of a franchise system is perhaps the most important advantage to Houston. “What would be cost-prohibitive to an independent business is accessible to every franchisee because the cost is shared across the system,” she explains. “This includes the product or service, how to effectively market it, and operational best practices.” 

She uses the example of a painting franchise. “They will have connections with contractors to do the work, paint companies for discounted supplies, marketing collateral to develop local brand awareness, and prospecting tools to find customers quickly,” Houston explains. “They will also have technology to schedule and manage customers, business coaches to answer questions and help guide the owner’s path, and in some cases, even a centralized call center to answer customer calls and schedule appointments.” 

And Houston warns that it would take years—and also be cost-prohibitive—to try to develop that kind of infrastructure for a single location.

4. Low risk level.

You probably know the startup failure rate by heart. However, Rose says the rate of failure is lower for franchises—and that’s because they have an established brand, operating system, and strategy. “Additionally, the proven system makes getting a franchise loan much easier than getting a loan to start your own business,” he says.

It’s also less risky because of the extensive training options that are available. “Franchisors don’t just hand you a manual and say, ‘Go!’ You will get extensive training, usually both virtually and in-person.” 

And there’s another reason why this route isn’t as risky. “Franchisors have a lot of background work to do before they can offer a successful franchise opportunity to investors,” Rose says. He clarifies that not all franchisors are winners just because they offer franchise investments. “However, the burden of proof regarding the system and brand is high for franchisors.” 

Houston agrees and says that it’s common for businesses to fail because they don’t have enough funding. “But it’s often that they run out of money before they figure out how to operate efficiently,” she explains. However, you’ll have a blueprint on how to do it right. “This also makes funding franchises easier because banks look more favorably at the proven system a franchise provides,” Houston says. “Many franchises have pre-approval with the SBA, which allows lenders to focus on the qualifications of the franchisee rather than the business plan.” 

5. Skip the startup phase.

Building a brand-new business is hard work. Rewarding, yes—but hard work. As a startup, you have to imagine and realize everything—logo, voice, brand, financing, sales model, hiring, training, networking—and the list goes on and on. 

When you buy a franchise, you skip the sleepless startup years. You jump right into a time-tested brand that’s done the troublesome work of laying a strong foundation. There are still challenges to face and hurdles to leap, but your mission isn’t to build something from nothing—it’s to take something and make it even better.

6. Reap the rewards of allied advertising.

Marketing and advertising quickly become one of your business’ most costly expenses. Eventually, you reach a point where you incrementally gain sales from more marketing—but it takes quite some time to dial in that strategy.

However, when you franchise, you earn sales from the cumulative marketing effort of all the franchises. Yes, your franchise will be expected to contribute a certain amount of resources to advertising, but you’ll also benefit from every other franchise’s efforts.

For example, another location of your same franchise may have invested in some hamburger advertisements along the highway. Your customer begins to salivate when she sees those signs, but decides she’s going to get a burger closer to home—and she ends up buying the combo meal from your establishment. That’s the power of allied advertising.

7. Tap into the franchisor’s resources.

Franchisors’ buying power often gives them access to equipment, supplies, and even inventory at reduced costs. Franchisors can negotiate deals with suppliers and vendors on a grander scale, enabling individual franchisees to make necessary purchases at discounted prices.

Whether you need commercial refrigerators or tables and chairs for the lobby, your franchisor can score you some super deals. 

8. Secure top-notch financing.

Franchises are more likely to earn loans from banks and alternative lenders. There are a few reasons for this:

• Lenders know your business model has been proven.
• You already have a solid client base, established brand, and franchisor support.
• You’re not alone—you have networking access to other successful fellow franchises.

These franchisee characteristics reduce the risk that you’ll default on a loan, thereby increasing your chances of scoring grade-A financing.

Plus, franchisors want you to expand their brand, so some will chip in to make it happen. For example, 7-Eleven provides an internal financing program that can provide capital for up to 65% of the initial franchise fee. The UPS Store offers financing options and special discounts—like a $10,000 savings perk for veterans. And Liberty Tax has established relationships with Small Business Administration (SBA) lenders to expedite your loan applications. 

9. Access education programs.

Franchisors have had the benefit of witnessing the victories and failures of potentially hundreds (maybe thousands) of other locations—so they’ve figured out what works and what doesn’t. As a result, they’ve usually created a replicable system for success that includes:

• Training programs to bring new hires quickly up to speed
• Time-tested software and hardware that improves efficiency
• Best-practice procedures for launching a new franchise
• FAQs for how to deal with any imaginable scenario

For example, our Lendio Franchise program gives you access to a deep-dive webinar on how to launch your franchise. Once you finish that, our team sets you up for success with detailed next steps and key information. Franchise programs like these are committed to your progress, and they’ll give you all the knowledge and tools you need to succeed.

10. Benefit from ongoing support.

Sometimes, everything doesn’t go according to plan—and when it doesn’t, you’re not alone. Your franchisor wants you to succeed, and they’ll do whatever it takes to push you in the right direction, including:

• Connecting you to local fellow franchise owners to learn from their ups and downs
• Providing on-site training for everything from POS (point of sale) technology to bookkeeping procedures
• Offering digital support to deal with emergencies or questions

Franchise disadvantages

While buying a franchise offers significant opportunity, there are also challenges to consider before jumping in headfirst. Here are seven disadvantages of franchising a business.

1. Costs

While the advantages of being a franchisee are numerous, it’s going to cost a pretty penny to join this club. “While we exist to help our franchisees improve their lives and careers, we are also a for-profit company, like all other franchisors,” Douglas explains. “This means that royalties or startup fees will be owed.”  

According to Tino James, owner of Sunrise House Buyers TX, which buys, renovates, and then resells or rents houses,” that amount could get pretty high. “You will need to pay a franchise fee and startup costs, which can be upwards of $1 million for some franchises.” That view is shared by Houston, who says there is a franchise fee, royalties, and sometimes other fees for marketing and support. Fortunately, there are some great franchises that won’t break the bank.

2. Limited reputation management.

Remember Subway’s public relations nightmare with its former spokesperson, Jared Fogle? “Your local reputation is only as good as your franchisor’s reputation,” says James. “If the brand runs into any type of trouble, your business may suddenly be impacted.” A report from The Reputation Institute found that Subway’s reputation took a hit after the scandal and fell from a rating of “strong” to “average” during that time frame.

3. Lack of control.

Although franchises offer work flexibility, not everything is flexible. “Though franchisees have some autonomy in how the business operates, for the most part, they are required to follow the rules, regulations, system operations, and directives of the franchisor,” Douglas says. “If you have a more efficient way to conduct the business, you may be limited in your ability to implement new processes.”

Of course, some degree of consistency is necessary. When you go to McDonald’s, you expect certain menu items regardless of the location. If you stay at a Holiday Inn, you expect a reasonably-priced room. “Franchisees must operate the business in accordance with the standards and specifications established by the franchisor rather than doing things as they wish, and they must offer only the products and services approved by the franchisor,” explains franchise attorney Ryan Whitfill of Culhane Meadows. “This is fine for most franchisees, but some very creative or independent people can feel stifled in a franchise system.”

In addition, Whitfill says franchisees may be subject to the pricing restrictions established by their franchisor. “This means they may be required to charge their customers certain minimum or maximum prices for their products or services.”

The most important advice we can give you is to do your homework. “With nearly 4,000 franchises in the U.S., finding a great business model with territory available in desirable markets is no easy task,” Houston says. “There are some fabulous brands with all the tools a franchisee needs to win, but there are at least as many money pits waiting to happen.” 

4. Limited creative opportunities.

In addition to a lack of control with respect to business operations, you’ll also have limited opportunities to flex your creative muscles within a franchise. Franchises, particularly larger or more established ones, usually have established creative assets, brand guides, storefront decor, and marketing campaigns or strategies. Even if you have some creative freedom, you’ll likely need to operate within the existing guidelines, or at least run new ideas past your franchisor.

Of course, not all business owners mind having the creative side “standardized” and may even consider this an advantage. However, if you’re looking for an opportunity to develop your own assets or design your own space, you may feel limited by the constraints of a franchise.

5. Contracts aren’t permanent.

When you buy a franchise, you’ll sign a contract that indicates the duration of your ownership. The exact timeframe can vary based on the financial commitment, the industry, and overall market conditions. Once the contract is up, you and/or your franchisor may decide against renewing the contract. If you don’t have anything lined up afterward, you may need to spend more time looking for another opportunity.

In some cases, you can leverage a temporary contract to your advantage. For example, you might use your franchising experience as a stepping stone to starting your own business or expanding your portfolio with another franchise in a related industry.

6. Lack of financial privacy.

Most franchising agreements allow the franchisor unlimited access to your business’ financial information, as they will need the data to make informed decisions across franchises. Whether you consider this a disadvantage or advantage will depend on how much leeway you want in your business.

If you’re seeking more freedom and flexibility with your business finances, or simply value your financial privacy, having to report to a franchisor may cause frustration. If you’re looking for support with the financial aspect of your business or are otherwise open to receiving guidance, you may benefit from sharing financial data and discussing any issues with your franchisor.

7. Potential for conflict.

The close working relationships formed from owning a franchise can pose both an advantage and a disadvantage. While you will receive ongoing support from your franchisor and communicate with them frequently, you may also experience conflict, particularly if you and your franchisor don’t see eye to eye.

Though your franchise agreement will clearly state the expectations of both parties, you have minimal legal power to enforce this agreement, with franchisors typically having the“upper hand in the deal. Enforcing the terms often leads to a lengthy and costly legal battle, which can drain necessary resources from your business.

To minimize this risk, get to know your franchisor’s management style and personality, and make sure it aligns with your own. While you can mitigate some potential pitfalls through clear communication and expectations, a mismatch of personalities or values can’t always be solved. In turn, this can lead to greater issues down the road. Before signing a contract, ensure you feel comfortable and confident working closely with your franchisor for the foreseeable future.