Sausalito Entrepreneurs: Make Sure You Know the Pros and Cons of Owning a Franchise

Do you have aspirations of becoming a business owner? You're in good company! Thousands of Americans start their own businesses every year. But starting a business from the ground up can be a risky proposition. One way to minimize that risk is to buy into a franchise.

Franchises have become increasingly popular in recent years as a way for aspiring entrepreneurs to get their feet wet in the business world, and there are some definite advantages to going the franchise route. But it's not all rainbows and butterflies; there are also some significant downsides that you need to be aware of before making the decision to open a franchise. Today, the Sausalito Chamber of Commerce takes a look at both the pros and the cons of opening a franchise so you can make an informed decision about whether or not it's the right path for you.

The Pros of Opening a Franchise

It's Easier to Get Funding: There are several reasons why opening a franchise can be advantageous over starting a business from scratch. Perhaps the most obvious is that it's generally easier to finance a franchise than it is to fund a new business venture. This is because banks and other lenders view franchises as less risky than other types of businesses.

You Reap the Benefits of Brand Recognition: Another big advantage of franchises is that they come with instant brand recognition and established customers. When you open up a McDonald's, people know what they're going to get because they're already familiar with the product and service you're offering. This takes a lot of the guesswork (and marketing budget) out of growing your customer base.

You're Given Training: In addition, most franchises provide training for both you and your staff, which can make getting up and running much smoother than if you were starting an original company. And because franchises are part of larger networks, you also have access to collective resources and buying power that independent businesses don't have.

The Cons of Opening a Franchise

It's More Expensive: Of course, there are also some disadvantages associated with opening a franchise. One of the biggest is the high cost of entry; according to the Small Business Administration, the average cost of franchising is $20,000 to $50,000 (though this number can be higher or lower depending on the particular franchise).

You'll Still Have a Boss: Another downside is that as a franchise owner, you won't have as much autonomy as you would if you were running your own show. Franchises come with rules and regulations that you'll need to follow, which can limit your creative freedom when it comes to things like marketing and product development.

You'll Have to Share Financial Information: Because franchises are part of larger organizations, they also tend to lack the financial privacy that independent businesses enjoy. Everything from your sales figures to your expenses will be reported back up the chain to corporate headquarters.

Is Opening a Franchise Right for You?

Only you can answer that question, but we hope this article has given you something to think about as you weigh your options. If you do decide that opening a franchise is the right path for you, there are some additional considerations you'll need to keep in mind.

Choosing the Right Business Structure

An LLC, or limited liability company, offers many benefits for small businesses, and that includes franchises. LLCs protect your personal assets in case your business is sued, and they offer tax flexibility by allowing you to choose how you want your business taxed (as either an S corporation or C corporation). Take a look at how to start an LLC in California, and reach out to an online formation service to file your paperwork if you decide to take this route — these companies are much less expensive to work with than an attorney.

Doing Your Research and Creating a Business Plan

Franchises also require extensive planning and research just like any other type of business venture. Even though someone else has done most of the legwork for you in terms of tasks like market analysis and product development, you'll still need to put together a detailed business plan outlining your goals, strategies, and financial projections before moving forward with opening your doors for business.

Opening a franchise can be a great way to get started in the business world — but it's not right for everyone. Carefully weigh the pros and cons before making any decisions, and consult with an experienced business attorney to find out what legal structure makes sense for your new venture.

Ready to take the leap into business ownership? The Sausalito Chamber of Commerce is here to help. Join us today!