If you are considering business ownership but are hesitant to venture out on your own, you may want to consider becoming a franchisee, or franchise owner. Becoming a business owner can be an intimidating process, but when you purchase a franchise, you get a team of support which includes marketing asistance, HR tools, and training. Having others who are committed to your success as a business owner and who are willing and able to help when you run into problems is just one of the many advantages to franchise ownership. This section will show you all of the advantages and disadvantages of purchasing and operating a franchise and will help you discover whether franchise ownership is right for you.

Advantages of franchises

:: Higher rate of business success

Perhaps the number one reason people become franchise owners is because franchises have a higher likelihood of succeeding than do traditional start-up businesses. In fact, according to the U.S. Department of Commerce, 95% of franchsies are still in business after five years. Compare that to the fact that less than half of traditional start-ups are reportedly still in business five years later. Why the high rate of success for franchises? Franchises combine a proven business model with individuals they believe will succeed as owners. Franchisors (the companies who sell or grant franchises to individuals) evaluate each prospective franchisee (individual franchise owners) and invest in those they think will thrive as franchise owners for their company. They look for specific skills, experience, motivation, financial capacity and more to choose people who will be able to afford the franchise, follow the business operational model, and become successful. This combination of successful business models and proven products or services along with individuals chosen for their potential as franchise owners has resulted in an explosion of franchise operations around the country.

:: Established brand identity

One of the key advantages of operating a franchise is the ability to give consumers a brand they know, a quality they trust, and a consistency they have come to expect. Purchasing a franchise means purchasing the reputation of the brand, an established customer base, and a set of products or services that have been succesfully tested in communities. Many new business start-ups struggle to enter markets because doing so requires a significant investment in advertising dollars that many new businesses do not have the funds or the know-how to implement. Franchise owners have an advantage because they are marketing a product or service that has already distinguished itself from others in the market, and they have the benefit of a business plan and marketing plan that have already been proven to work. While new business start-ups must work at building a reputation and generating awareness of the product or service they offer, franchises are often preceded by their reputation and can make an immediate impact within a community.

:: The dirty work is done

Perhaps the most difficult thing ne w business owners face when opening a business of their own is the burden of starting from scratch and building the business, including the brand, customer base, company ethics, business plan, marketing plan, etc. The tasks of starting a business can not only be lengthy, but they can be expensive. Because things often don't work out right the first time, new business owners often get pulled into a cycle of trial and error as they look for the business elements that work best. As a result, many small business fail from the onset because the owners don't plan on the additional money they will need to keep them afloat until a customer base is established and new business is generated. Business success is rarely instantaneous, and most often requires more than a year of hard work to figure things out. In a franchise system, however, the work has already been done to develop a product or service, identify and reach a target market, build a name and reputation, and create a replicable, successful business model. While many new business owners spend the first year (or longer!) testing products, sales tactics and marketing acenues, franchise owners already know exactly what works and how to effectively reach their target audience with persuasive messages and consistent sales pitches. Franchise owners have the luxury of getting it right the first time.

:: Business support

Business owners who start their own business take on a great deal of responsibility to keep the business afloat: they must market to reach new customers, provide products and services to existing customers, hire new employees to handle increasing business, and train those employees to do their job properly. In other words, new business owners must learn to be sales representatives, accountants, human resource managers, marketing experts, and the face of their business for all external matters. Whew! That is a lot of responsibility! While some individuals may thrive in the multiple roles business owners must take on, others need support or assistance in some or all of the aspects of business ownership. There is a common franchise slogan that says "in business for themselves, but not by themselves". Franchisees have a full entourage of support and the tools to guide their individual businesses to success. Most franchisors provide comprehensive training to help you operate your business, oftentimes including on-site assistance as you set up shop. In addition, you will receive human resources tools, specialized software, marketing materials, assistance with business plans, and other valuable resources that independent business owners must find or develop for themselves. This is a major advantage if the thought of developing your own employee training manuals makes you queasy.

:: Easier to finance

If you are looking to start a business with less than perfect credit and need to apply for a business loan, the established history of a franchise may help you get your loan. Because new business start-ups are extremely risky, banks are often hesitant to hand out loans without a history of business management and credit management in your past. Prospective franchisees applying for a business loan have the advantage of a tested product or service, a successful business model, and a core of support from the franchisor that includes management assistance, training, and human resources help. Banks know that franchises have a higher likelihood of success than other small, new businesses. As a result it is often easier to secure a business loan for a franchise than for a business start-up, and even more so for an established franchise.

:: Shared risk

All business owners take on a great deal of risk when they go into business for themselves by investing their time, money, and personal equity. Although there is risk involved in becoming a franchisee, that risk is shared with the franchisor. The franchisor takes a risk on you by allowing you to own and operate one of their company stores. They invest time and resources on your franchise, in addition to their reputation and their success. Franchisors want you to succeed and, as such, will provide you with the support you need when you struggle. While independent business owners must often fend for themselves to find out what went wrong in their business, franchisees have the support of franchisors to identify and fix any problems they may be encountering. Because your risk is their risk, your success is also their success. As such, you enjoy a shared commitment to your business.

Disadvantages of franchises

Does owning a franchise seem too good to be true? Although there are many advantages to owning a franchise, there are downsides as well. While these disadvantages may seem minor to some, they may turn others away from the notion of franchise ownership entirely. Read on to learn the negatives of franchise ownership and decide if it is the path for you.

:: Factors beyond your control

The value of a franchise lies in the value of the brand and the brand's reputation. When you purchase a franchise, you must take into account the reputation of the parent company and other branches of the franchise. If, over time, that reputation is damaged by factors beyond your control, the results on your business can be catastrophic. And because your franchise agreement is a long-term agreement, getting out of that franchise system may be more difficult than you thought. Here are a couple examples of how your business is dependent upon the reputations of the company and other branches around you:

You decide to open a gas station on the main corner of town and choose GasToGo, a regional franchise that has been expanding rapidly in your area. A year after you open your business, the CEO of GasToGo is accused of embezzling millions of dollars from the area. As a result of the CEO's actions, residents in your community call for a boycott of all GasToGo stations. Although you had nothing to do with the embezzlement, your business will suffer from the CEO's mistake and the resulting loss of loyalty from your customers.

As a second example, suppose you own and operate a fast food restaurant, Billy's Best Burgers. Three miles away is another Billy's Best Burgers store operated by a different owner. Although your store has never broken any laws, it is discovered that the Billy's Best Burgers across town has been dumping waste into a nearby river, and an investigation of all Billy's Best Burgers in the area is ordered. Although each restaurant is individually owned and managed, most consumers will see them as part of the same company and will not differentiate between the two. As a result of the illegal actions by one Billy's Best Burgers, all of the franchises within the region will suffer customer loss.

It is true that not every problem can be foreseen, but it is important to do your homework on whatever franchise you decide to purchase. The reputation and history of the franchisor you choose will become the reputation and history of your new business. That can be positive or negative depending on the business history and ethics of the franchisor. Careful research will help ensure that this becomes a positive aspect of your franchise experience.

:: High costs

Many people who pursue franchise ownership do so because they believe the costs associated with franchises will be less than those of a traditional start-up business. And for some franchises, that is true; for many others, however, the costs can soar when franchise fees, capital requirements, marketing fees, royalties and other fees are added up. In fact, one of the reasons that new franchises fail is insufficient funding and a lack of working capital. There are a few primary reasons why franchises can become expensive investments. The first is that you will be paying royalties back to the franchisor for the duration of your business. You may have other monthly costs as well that equal a percentage of your profits, such as ongoing advertising or leasing fees. Remember that the more money your business makes, the more money you have to pay out to the franchisor. Another high cost of franchise ownership is the cost of doing business with approved suppliers and affiliate partners. These partners will ensure the consistency and quality of products that the franchisor demands, but may also result in steep fees for franchisees. When looking at the costs of a franchise, understand the entire picture. There is more to a franchise than just the initial franchise fee. When considering low-cost franchises, compare the services offered by the franchisor to those offered by higher-priced franchises. Low cost franchises may not include everything you will need in the up-front franchise fee, such as training and marketing assistance, leaving franchisees to pay out-of-pocket for those services. Can you find a good franchise for less than $50,000? Look for franchises with few large investments required, such as work-from-home businesses. Businesses that eliminate the need for real estate or property, expensive equipment or machinery will be legitimate low-cost options that could become incredibly profitable enterprises. There are hundreds of reputable, low-cost franchises if you know what to look for and you are smart from the very beginning.

:: Restrictions on business

If you are going into business to be independent and let your creative, entrepreneurial side come out, franchise ownership may not be the right choice for you. Franchises are based on previously-developed, successfully-tested business ideas, concepts, and plans. Franchisors believe that if franchisees take the tools and resources given to them and market the product exactly as instructed, they will be successful. And while the success rate of franchises is something to boast, it leaves little room for imagination. Most franchisors have strict regulations on how individual franchises may operate. Deviations of the product or unapproved marketing is rarely allowed. Franchise owners must sell a specific product or service, advertise with specific marketing materials and slogans, and obtain materials from specific suppliers and affiliate partners. The ways that you, as the franchisee, must conduct business are extremely rigid. While this appeals to many business owners who are attracted to franchises because of the structure and support, others may find this too regimented for their individual business style.

:: Reduced profits

One of the greatest appeals of business ownership is that you benefit personally from your hard work. As an employee at another company, your hard work usually means greater profits from the company and sometimes a bonus for the CEO, but you rarely see those profits yourself. As a business owner, however, the new business you generate translates directly into extra profits for your business and for you. Many people seek entrepreneurship as a way to increase their earnings and have greater control over their financial destiny. Franchise ownership is a middle step between the financial freedom of business ownership and the disappearing profits when you work in someone else's company. As a franchise owner, your hard work will in fact directly result in higher profits for your business, but it will also require higher royalties and other monthly payments to the franchisor that are paid as a percentage of sales. Most franchisors require continuous monthly royalty payments that equal 5-10% of your profits. Although you can still increase your earnings significantly through franchise ownership, the most successful businesses will pay out the most money to franchisors. Many franchisees fail to calculate this as part of the cost of doing business and are disappointed to lose a percentage of their profits every month they are in business.

:: Vague, misleading, or incomplete franchise agreement

Your franchise contract is the single most important element of owning a franchise because it protects you and your business before your first sale ever happens. Vague or incomplete franchise agreements can hurt your business significantly and leave you vulnerable to circumstances that threaten your business, your territory, and your chances for success. If you are not clearly protected in your franchise agreement, there is little that you can do after the fact if you run into trouble. It is important, therefore, that you clearly understand all of the stipulations in the contract. To help you understand everything, hire an attorney and an accountant who are experienced and knowledgeable in franchise agreements. A franchise agreement can be an incredible asset, but it can also be a liability if not written clearly. Make sure you and your business are protected from the start by knowing what is required of you, what is required of the franchisor, and what is or is not guaranteed to you throughout your relationship with the franchisor.