The Cons of Franchising Your Business

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The Cons of Franchising Your Business

Lots of people will tell you that you should franchise your business as soon as possible, and in some cases it is a good idea to turn your business into a franchise – however not all businesses should be turned into franchises and not all times are right for turning a business into a franchise. You need to be able to decide whether or not making a franchise out of your business is the right move for you and you need to pick the right moment for yourself and for the market if you are going to have a chance of succeeding. There are a lot of potential cons to starting a franchise at the wrong time or if your business is unsuited. Here are some of the reasons that you may want to think twice about turning your business into a franchise.

One of the first possible cons is that not all businesses make a good franchise – there are a lot of potential complications that can arise with the running of any kind of business. When you invent a franchise business you are making an assumption that a lot of the same techniques and business processes which worked for you in one place are going to work for people who adopt them in other places. It may be that the local success that you have enjoyed up until now was something which only happened to work with your business in the local market and you may have trouble adapting it to suit the needs of other markets.

Think about the way that your business works – is there some reason for you to believe that your business and its success has been related mainly to the way that the local economy works? Is there the same kind of demand for the service that you are providing in other markets? Have you tried to expand the business into other markets before or are you simply assuming that the products and services that you have developed will be able to enjoy the same level of demand in another marketplace?

Another potential con of the franchise is the complex requirements needed to create a franchise out of your company. In most cases when a business is developed into a franchise an entire additional company is created just to handle the franchising aspects. The new company which handles the affairs of the franchise will need to hire a legal staff versed in franchising law as well as intellectual property law, a sales and marketing staff which will be engaged in constantly seeking out new people to sell the franchise to, an advertising / marketing staff for developing the brand of your company and making it better known among consumers, and a customer service department which will interface with the franchisees so that they are able to get the help they need planning their business operations.

You will always need to set up a supply chain for your franchisees, selling them the supplies and the equipment they need to keep their businesses running. This introduces a lot of potential complications – problems in any one of these aspects of the business will lead to problems with the well-being of the business as a whole and will make it that much harder to develop your franchise. Just as a lot of businesses go under in the first year, a lot of franchise operations go under in the first year as well. A simple lack of understanding of the amount of work and effort which is required to put together even the most basic of franchises is one of the main reasons that only a few franchises will make it, and those that do are generally based around simple business concepts that are easily translatable from one market to the next.

What kinds of business concepts tend to work well in all markets? Restaurants are one – everyone needs to eat, the level of demand is fairly consistent among all markets, and a food franchise based around a set of recipes which have enjoyed widespread success is one of the best candidates for a large scale franchise. The problem is that when you try to create a new franchise in the food market or in another market which is already well represented by competitors in the franchise industry you have so much competition that you will have to try very hard to stand out. When a market is nearly saturated, you may find that it is hard even to sell the franchise package to business investors, let alone get customers interested in your name and brand.

While there are surely aspects to your business which have helped it to stand out in the local market, you will need to be honest with yourself about its actual prospects when it tries to expand to a larger market. Is the business that you have developed, along with its services and products, original enough and unique enough to stand out in the larger market? Without the benefit of extensive market research you may find yourself flying blind as you simply hope that there is space for your business in the franchise world. You may want to try expanding your business a bit more before you decide to make the jump to running a franchise company and all that it entails.

Finally, as you think about turning your business into a franchise you should consider the costs that are involved. When you first created your company as a small business you probably found that there were a lot of unexpected costs that you ran into, and you appreciated the size of the bank loan that you were able to acquire in order to pay for the costs of starting up a new business. When you create a franchise company out of your successful business, you are, in essence, creating a new business. This business may succeed or fail, depending on the conditions of the market, the skill with which you are able to manage it, and the amount of money which you have available to pay for the expenses of setting up a new business.

Corporate fees, legal fees, the salaries for the employees that you will need to hire for sales, marketing and customer service, as well as the money that you will be spending on supplies and equipment for your franchisees – there are a lot of potential cash flow issues that you can run into and the costs of starting the new business may be huge. You need to think carefully about all of these sources of expense and decide whether or not you will be able to pay for them even with the support of a hefty bank loan. Have you been able to make enough money in savings from your original businesses to justify the business loan with the bank? Will you be able to get enough money from the bank so that you have all of the money you think that you need plus a strong margin of error for all of the extra costs that are sure to crop up?

All of this is not to say that you should definitely stay away from starting your own franchise business – under the right conditions you may find that your business is well suited to the franchise market and that you can make a lot more money, and have a much longer lasting and more stable company – as a big business franchise. You simply have to make sure that you have considered the major down sides of running a franchise. All of the effort and energy that it took for you to create your business in the first place will be just a warm up compared to what you will have to sacrifice as you create a successful franchise – this kind of challenge requires that you be at the right point in your life, ready to put in the hours and deal with all of the potential headaches which may occur.

Think about all of these possible reasons why a franchise might not be the best direction for your business, and you may find that for the moment it makes more sense for you to simply expand into new locations under your own management and see if your business can put together both the savings and the lists of successes necessary for it to be considered a valid contender in the competitive franchise market. Do your research to find out everything that you can in advance and use common sense and an honest approach to get the best kind of results from your franchise ambitions – good luck making the right choice when it comes to you, your business, and the potential of a franchise!

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