When it comes to commercial real estate investing, owning a franchise is pretty much at or near the top. With nearly 800,000 different franchises in the US alone, stemming from 4,000 distinct brands, there’s a lot of options for the interested investor. Although there are certainly some advantages to franchising; there are also some disadvantages to consider before embarking on this overall considerable venture.
Owning a Franchise: Advantages
As advertised, the advantages to operating a franchise often outweigh the proposed detriments. Consider the following:
Significant Profits: This assumes success, of course; but if you can manifest this your franchise operation will be hugely profitable when compared to owners of a single store or piece of real estate. The return on investment is historically high for franchises that can weather the storm of competition.
Diversified Risk: With several properties under your belt, you can afford to spread out the risk and thus mitigate losses. This is further buttressed by the dramatically increased buying power that the oversight company holds for the rest of the stores under its umbrella.
Establishment Benefits: The numbers don’t lie: franchises tend to be far more successful than single, independent stores. They have the brand name already certified, after all, as well as a tried-and-true business model.
Owning a Franchise: Disadvantages
Restrictions: This may not be too bad of a disadvantage, in truth: you are limited in the changes and decisions you can make since the trademark belongs to the company. This extends to location, emblems, etc – product uniformity is central to most of these restrictions. This can be a good thing, too, however, since the franchise is already successful in its own right.
Fees: This is the big one: you owe a lot of fees to the franchisor, as the relative franchisee. On the flip side, of course, you also bring in a lot more revenue from having the backing and multiple business locations. Buying into the franchise in the first place will set you back, however.
It’s up to you to gauge the pros and cons when you consider owning a franchise. More often than not, success means that the advantages far outweigh the disadvantages.
Capital Finance Partners offers comprehensive franchise financing solutions. Contact our offices today to learn more.