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The Pitfalls of Owning a Franchise

Mar 1, 2008
Franchise opportunities exist all over the world today. In fact, franchises are essentially what the whole world is made up of if one is to truly think about all the different opportunities that exist. Considering the fact that one company alone probably has thousands of franchises already located in the United States and around the world, it is definitely safe to say that over 5 to 10 million franchise outlets exist throughout many parts and corners of the world! There are definitely advantages to owning your own franchise of a company because it is essentially like owning a smaller portion of the company itself. Franchise owners get to keep most of the profits that come into their business in exchange for usually a modest royalty fee of their profits that get sent back to the company headquarters.

On the other hand, though, there can be some downsides to owning a franchise. The first downside to owning your own franchise is that you won't actually own your own company even though you'll own your own store or other company location! Many people have the desire to actually open up their own store and create a company all by themselves, but owning a franchise is not what that's all about.

In fact, you are essentially paying for a copyright allowance to be able to use the reputation of the company that you're working for! Indeed, by owning a franchise you are essentially working for that company. Why else does McDonald's or Burger King require part of the profits from your franchise? A franchisee owner is essentially working their franchise location in order to send more profits back to the company headquarters, even though that's not the way that many would like to think about it.

Another downside to owning a franchise, though, could possibly be the contract that you've locked yourself into. Considering the fact that the average contract length for a franchise store owner is usually 15 to 20 years at the onset it would truly make it difficult to get out of if a franchise owner was having trouble getting the popularity of the franchise store off of the ground in the first place. Furthermore, there may actually be hefty breach of contract fees as well if, in fact, your franchise doesn't do as well as projected and fails within the first few years!

The help and resources that a franchise owner might receive from the company may not be worth everything that is paid to the company headquarters as well! Many company headquarters actually have giant startup fees, annual fees, and royalties that must be shared with them, but if the franchise store owner is not able to get adequate help or training then the whole opportunity may be lost in the first place.

Considering all of these things before going down the road of opening up your own franchise is very important. Not only is it important to make sure you understand all the implications of owning a franchise, but making sure one understands the total commitment is also important!
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