Pros And Cons Of Franchising

Q: I am interested in opening a franchise one-price store that sells mostly 100% cotton clothes. What are the pros and cons of franchising versus opening a business under my own name?
Jacqulin Barillas, Belize, Central America

A: As the owner of your own business, you take in all the profits and can react faster to any problems that may occur. The flip side is that you assume greater risk. It may also take longer before your business turns a profit. On the other hand, as a franchisee, you may feel as if you’ve been reduced to the role of a store manager who is paid in compensation and incentives. In addition, your attempts to remedy a bad situation may be hindered by the franchise agreement, and you may be in for a legal battle if you want to get out of the deal.

In analyzing the profitability of each concern, it’s key to ask whether you really want to be in business for yourself. According to Robert Purvin, chairman of the American Association of Franchisees and Dealers and author of The Franchise Fraud: How to Protect Yourself Before and After You Invest (John Wiley & Sons; $27.95), you can increase your odds of success by “choosing a franchise that has proven to be profitable in its management style and marketing.” As a legal witness to numerous franchise failures, Purvin states that it’s not franchising that is responsible for the success of a business but the “proven concept.” Thus, if the concept is good, you can reduce the odds of failure. If you have a bad concept, however, it will only serve to magnify your problems.

Experts claim that a strong franchise will outperform a business start- up every time. If you choose the right franchise operation, “one that provides you with a proven business plan and thorough training, produces and markets quality goods or services and is established and has a good rapport with its franchisees, then franchising might be a viable option,” says Purvin.

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