The Pros And Cons Of Mcdonalds Franchise Ownership
Starting up in any business is always trying for the entrepreneur. While a business presents the opportunity for financial independence, the risks that any start-up has to deal with are many and financial ruin is a real possibility. For this reason, franchising presents a wonderful opportunity for those starting up. McDonald’s is a leading brand that offers new investors the opportunity to enjoy the benefits associated with franchising. But before entering into a franchise arrangement with the company, it would be prudent to consider the benefits and drawbacks of Mcdonalds franchise ownership.
Perhaps the biggest benefit of owning a McDonald’s franchise is the brand name itself. Building a brand can take many years of painstaking work and could be the biggest expense that a new business will have to bear. By owning a McDonald’s franchise, this hurdle is immediately overcome as the new investor will be inheriting a well-established and easily-recognizable brand that has succeeded in overcoming geographical and cultural barriers. In addition, such an investor benefits from the marketing economies that the franchisor already enjoys. The competition that kills many businesses at infancy is therefore overcome.
While new business owners have to worry about very basic things like price setting, the problem is already solved when they deal with well-established brands like McDonald’s. For start-ups, deciding the right price for their products or services is never easy and much money is lost in experimenting with prices which could be too high or too low. In either scenario, the new investor makes losses which could ruin the business.
Another advantage of owning an established franchise such as McDonald’s is the benefit that the new investor will enjoy of the franchisor’s knowledge of ideal business locations and product mixes. Benefitting from years of experience in what is ideal as a business location, the franchisor will be in a position to advise the new investor on a location that will make or break a business.
Owning a franchise has its drawbacks too. Perhaps one of the biggest drawbacks is the financial demand that franchisors make. In the case of McDonald’s, a new investor is required to raise a minimum of $300,000. This is certainly a huge amount of money and will immediately discourage many potential investors. In addition to this minimum entry fee, there are regular fees to be paid to cover rent and service fees. The tricky bit about the fees charged is that they always have to be paid whether the business makes profits or not. The catch here is that the fees are calculated as a percentage of sales not profit.
The decision on whether to acquire a franchise or not is inevitably in the hands of the investor. While franchising has tremendous benefits, the really wise thing would be to carefully weigh the benefits of owning a McDonald’s franchise or any other franchise for that matter.