What Are the Downsides of Investing in a Franchise?

Feb 02, 2010 · 3 mins read
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Owning a franchise has some definite upsides. Your business has immediate name recognition for toppers. The failure rate of an upstart franchise business is far lower than that of upstart businesses without the backbone of franchising behind it. Many franchises provide you with all you need to dive right into the world of business including advertising and training. Yes, franchising sounds like a viable business choice for the person wanting to get away from stupid bosses and strike out on his own. So what is there about franchising that you should know about that you won’t find in the Handbook of Franchise Advantages?

The Cost of Buying a Franchise

The cost of buying into a franchise tends to be very expensive. In fact, buying a franchise is almost certainly more expensive than you think. Buying the franchise rights is just the beginning. The real drain on your money comes in the form of franchisor’s fees. Franchisor’s fees can include things like buying licenses and hidden advertising fees. In order to get in on the franchise gravy train, you may be required to spend significant upfront money leasing land, buying equipment and keeping a steady stream of supplies on hand.

Location, Location, Location

Real estate is still and will always be about location. You may have your eye on a prime piece of land that is in the middle of nowhere right now, but will be in the middle of a growing neighborhood in five years. Before you start counting your money, be aware that some franchisors choose specifically where your particular franchise can be located. And that location may not be prime in any way, either in the now or in the future. Much money is spent by franchisors studying local markets and very often the location that is picked out for you turns out to be better than any location you’d have come up with on your own. But studying local trends doesn’t always translate into understanding local trends. The site you are given may be a dog.


A franchise contract will spell out exactly how long you are to remain committed to making it work. You may be okay with committing to that length of time as you get all caught up in the excitement, but that excitement may wear off as you realize you aren’t going to make big money. The contract is still valid, however, and you must figure out a way of getting out of your contractual agreement. That may be easier said than done.


Some franchises give local franchisees almost complete independence. Others do not believe in independence at all. Do the research before investing in a franchise and find out exactly what kind of input the home office provides. Have a lawyer go over the rules and regulations with a fine tooth comb because some franchisors want a say in practically every decision you will make. Consistency of product is the excuse that will be given for this intrusion into self-rule, but it may also just be a case that your particular franchisors are control freaks. Keep an eye out for intrusive franchise operations during your research phase and keep in mind, always, that a franchise is not a golden ticket to business success.