Individuals with a strong entrepreneurial spirit will often seek new and exciting business opportunities. Many will explore the strategy of buying into a franchise. There are proven benefits to this action such as immediate access to an established brand, buying power and an existing customer base. However, there are certain disadvantages that franchisees should also remember.
Franchise agreements are specifically written to favor the franchisor. Much of the decision-making power rests with the existing company. That said, a franchisee will likely face certain other challenges, including:
- All franchises are run in the exact same way as the original business. While this can be a source of comfort, many business owners might feel restricted by the loss of flexibility.
- Based on the franchise agreement, the franchisor might have final say in the location selection.
- An established customer base can also mean established competitors.
- Many franchisees assume a certain level of support from the franchisor. Unfortunately help can be inconsistent or non-existent based on the level of complexity. From supplies, to marketing to technical support, many franchisees feel alone to face their struggles.
- The franchisee will likely bear the expenses of ongoing costs, advertising and royalties.
As one of the most popular types of business models, the franchise model employs a staggering number of Canadians. This business model can offer stability and a win-win for both the franchisor and franchisee. However, it is crucial that the franchisee takes steps to protect himself or herself. Look for legal guidance when seeking to draft or sign a franchise agreement. These documents can be restrictive and stilted to favor one side over the other. It is wise to be cautious.