Franchise investment models: financial feasibility and return on investment for new entrepreneurs

Abstract

Franchising is often presented as a structured route into entrepreneurship because it combines individual entrepreneurial initiative with an established brand, standardized routines, and operational support provided by the franchisor. However, the academic literature indicates that the financial viability of franchise investment is more complex than this conventional narrative suggests. This article analyzes, through a literature review, how studies on the United States and Brazil address financial viability and return on investment in franchise models aimed at new entrepreneurs. The findings show that franchising may reduce part of market-entry uncertainty, but it does not eliminate financial risk or guarantee superior performance relative to independent entrepreneurship. The literature highlights the relevance of leverage, recurring cost structures, franchisor support quality, relational governance, operator characteristics, and institutional context. In Brazil, the literature also emphasizes signaling, multibrand and multisystem strategies, and microfranchising as responses to information asymmetry and market heterogeneity. The article concludes that franchise investment should be understood as a governance arrangement that redistributes risk and conditions economic outcomes, rather than as an inherently low-risk path for new entrepreneurs.