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Pros and Cons of Franchising

The former basketball superstar turned mega-entrepreneur Earvin “Magic” Johnson is a firm believer of franchising. In fact, he runs various franchises from Burger King to Starbucks. Yes, Starbucks — where the franchising option is closed to mere mortals but open to someone like Magic (Magic Johnson is its only partner, actually)

In his book “32 Ways to be a Champion in Business,” Magic Johnson lists down the advantages and disadvantages of owning a franchise. His tips are a first hand look at how it is to buy into a franchise and what can you really expect when you become a franchisee

Advantages:

• Your risk is reduced as you are buying into a proven system for operating the business and generating profits.
• Though there are substantial fees for buying in to an established major brand franchise such as McDonald’s or Subway, a newer and smaller franchise operation might cost you less initially than doing your own independent startup.
• The business support system is built in (e.g. training, financing, money management).
• The psychological support system is in place … you plug into a network of business owners facing the same daily challenges and problems.
• The marketing support system is established.
• The brand is already built – you plug in to its customer base.
• You get a group rate – to reduce the costs of supplies, inventory, equipment and even medical, dental and eye care.
• It’s easier to recruit good help
• Your opportunities for growth are better – successful brand franchises generate steady cash flow and banks are more willing to provide loans

Disadvantages

• It’s their company = your name will not be on the door or the signs
• It’s their product or service = you are selling a product or service that is created and controlled by the franchisor.
• It’s their system = you will have to do things the way the franchisor wants them done
• It’s not always cheaper = For a well established and successful brand, your startup costs might be considerably higher
• If you have low credit rating, it can be tought to get financing for even a small home based franchise
• You may have to pay up front and annually, too.
• You may not get all you want from the corporate office
• You will have to learn to go along to get along = there may be times when you feel more like an employee of the franchisor than a co-owner
• Cannibalization (profit eaters) = franchisors sometimes get so eager to keep growing that they allow franchisees to locate so close to one another that they cut into one another’s profits
• Success is not guaranteed in a franchise or any other business
• You will still need a lawyer and an accountant
• If things go bad for one franchisee in your group, it can hurt all the others

We are currently adding to our list of home-based franchises, so if you think that franchising is for you and you want one that you can run from your home, check out our Directory of Home-Based Franchises