Interest in entrepreneurship and starting a business has skyrocketed in recent years, as many people are looking for ways to escape the corporate ladder and take control of their lives.
Franchising has always been a popular option for those looking to start their own business, and the trend appears to continue for the foreseeable future. In 2024, franchise growth of 2.2% exceeded projections, despite ongoing economic uncertainty. In 2025, franchising is expected to add more than 200,000 jobs to the economy, bringing franchise employment to more than 9 million jobs.
While franchising offers benefits like an established business model, assistance in understanding financing options, training, support, and brand recognition, it also can involve some additional fees, operational restrictions, and require more clarifying answers to questions like, “Is franchising a good investment?” “Franchising vs. owning a business, which is best?” and “What are the differences between licensing vs. franchising?”
As you consider the right business model for you and investigate what to know before investing in a franchise, it's important to understand all the advantages and disadvantages of franchising so you can make the most informed decision.
Why Franchising?
Franchising is a widely adopted business model that enables individuals to own and operate their own business under the umbrella of a successful brand. By entering into a franchise agreement, a franchise owner gains the right to use the franchisor’s proven business model, benefit from established brand recognition, and receive ongoing training and business assistance. This approach can reduce the risks associated with launching an independent business from scratch.
Before committing to franchise ownership, it’s essential to carefully review the Franchise Disclosure Document. This document outlines important details such as the initial franchise fee, ongoing costs, and royalty fees that franchise owners are required to pay. Understanding these financial obligations is crucial, as they impact your long-term profitability and business success.
With the support of a franchisor, like Neighborly, access to a network of resources and ongoing training and coaching, franchising can offer a structured path for entrepreneurs to enter the business world with confidence.
Pros Of Buying a Franchise
There are numerous advantages to owning a franchise compared to starting your own business from scratch, which is why so many prospective entrepreneurs elect to do so. Franchising offers several advantages for those looking to go into business for themselves, including access to proven business models, established support systems, and shared resources. Here are some other factors to consider...
Bypassing The Start-up Phase
One of the top advantages of owning a franchise is that franchise businesses seem to have a higher success rate compared to start-up businesses. This is because franchise businesses already have a well-established, tested business model in place, so why create one from scratch?!
The start-up phase of a new business can be overwhelming and often leads to failure for many, especially those who have to navigate the process alone. There are so many moving parts. From coming up with a clever and innovative idea to building a great team to documentation and paperwork, it can be difficult to keep track of everything, let alone succeed.
When you buy a franchise, you benefit from the brand's extensive knowledge and industry experience instead of struggling to figure things out through trial and error. This allows business owners to focus on learning the industry and how to operate their franchise rather than wasting precious time in the start-up phase.
Another reason why new businesses often fail is choosing the wrong product or service. What seemed like a great idea with unlimited potential may end up being a business with low demand. Most small business owners don't know or can't predict demand for their products or services in advance, leading to costly failure.
Buying a franchise business means you are offering products and services that have been established and tested. This is especially true in the home services market, where the demand for essential services tends to be consistent over time. These advantages will help limit your risk of failure.
Want to learn about the resilience of the home service industry? Read more in this article.
Financing
One of the greatest challenges for small business owners is securing capital to start a business. While buying a franchise does come with initial costs, purchasing a franchise is viewed by many lenders as less risky than starting a new business, making it easier to secure financing.
Because of this, banks and other financial institutions can be more likely to finance a franchise business than a start-up, making it easier to qualify for a loan. In fact, the U.S. Small Business Administration (SBA) reserves a portion of its loan allotment specifically for franchises, making an SBA loan one of the best ways to finance your new franchise business.
However, SBA financing isn’t your only option. With the right support team, you can find the right financing options for your portfolio and investment level. At Neighborly, a team of experts is here to help guide you in the right direction.
Training And Support
Another clear advantage to investing in a franchise is that you don't need industry-specific experience to be a successful franchise owner. While knowledge of your industry or business principles is always helpful, if you've been looking for an opportunity to work in a field that is new to you, franchising is a great way to do so.
The reason that prior experience isn't strictly required is that all successful franchise owners go through an intense training program provided by the franchisor. This comprehensive training covers everything from operating procedures to marketing strategies and provides franchise owners with the tools needed for success. At Neighborly, this training occurs in three main areas:
- Initial training: You will gain upfront education about the franchisor as well as detailed information about the services you will be offering and the technology available to help you along the way.
- On-site training: After the initial training, your next step is hands-on training at your business location or shadowing a current franchise owner.
- Ongoing business coaching: Franchise owners are offered continued support and consultation to keep you updated on offerings and industry trends.
As you can see, franchisors, like Neighborly, invest heavily in each franchise owner. This is in the best interest of both you and the company. After all, the success of you and your franchise business is directly linked to the reputation and credibility of the franchisor.
Brand Recognition
Another significant advantage of franchising is instant brand recognition and marketing support. The brand name is also the identity of the franchise, so if that franchise is well-known and respected, the brand name gives franchise owners a distinct advantage over similar independent businesses.
Being able to operate under a respected, award-winning brand name is one of the major benefits of opening a franchise. In many cases, a well-known brand name will come with a loyal customer base that would otherwise take time to establish. This can make marketing your franchise business much easier and can help you build a customer base.
For an overview of the world of franchising, additional benefits of franchise ownership, and financing options, you can download this guide.
Cons Of Buying a Franchise
Becoming a franchise owner has many monetary, flexibility, and work/life advantages, but there are also some franchising risks and challenges that you need to consider before you choose to invest in one.
Franchising Restrictions and Regulations
When you buy a franchise, you enter into a formal agreement that outlines how to run your business. For some entrepreneurs, this can feel limiting and seem to offer less room for creativity.
For example, in your franchise agreement, a franchisor can put restrictions on things like operating hours, vendors and products, décor, pricing, and advertising and marketing.
For this reason, owning a franchise may not be the best option for an entrepreneur who values the ability to make all the creative decisions themselves. On the other hand, having a good structure and operational consistency can be very valuable in maintaining a successful business venture.
Franchise Fees
Another potential disadvantage to franchise ownership is having to pay franchise fees. Franchise fees are the costs associated with buying and setting up a franchise business and can range in cost. Some common franchise fees include:
- Initial Franchise Fee: This is a one-time fee when you sign your franchise agreement.
- License Fee: Also known as royalties, this is a fee (usually monthly or quarterly) for ongoing support and use of the franchise business name and model.
- Other Fees: Some franchisors require franchise owners to pay ongoing fees, such as paying into a collective marketing fund.
These fees help the franchisor maintain operations and provide the support mechanisms necessary, like marketing experts and a 24/7 call center to help run your business successfully. Check out your Franchise Disclosure Document for more information on fees.
Is Franchise Ownership Right For You? Take The Next Step To Find Out and Explore Opportunities
Ultimately, it is important to understand the pros and cons of buying a franchise so you can make the right choice for your skills, personality, and aspirations. For many new business owners, the positives of owning a franchise greatly outweigh the negatives. The best way to determine whether franchise ownership is right for you is to research your options and talk to both the franchisor and current franchise business owners.
Do you think franchising may be the path for you? At Neighborly, we are dedicated to your success and helping you build your future, from how to pick a franchise to how to buy a franchise to how to effectively run a franchise.
Take the first step towards securing your future and download our free Ownership Guide today!
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