Advantages and Disadvantages of Franchising Business

Franchising is a style of business which has a lot of different but same branches throughout the world. Franchising business is an arrangement for a continuing relationship in which one party – a franchisor provides an accredited opportunity to another party – the franchisee to do business using its trade name and offers assistance in organizing, training, producing, marketing and managing a good or service in adherence to certain specifications, in return for monetary exchange. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and in turn gains instant name and recognition, tried and tested products, standard infrastructural design and interior decor, detailed techniques in running and promoting the business, training of employees and on-going help in promoting and improving the product

The advantages of franchising from the franchisee’s point of view are myriad. First, the franchisee can benefit from the widely recognized by the style of branding name of the franchisers around everywhere. When a franchiser is around ,it can only mean one thing that is the franchise is well known around and among people, reputed company with extensive customer base and immense brand name recognition. Brand equity is important so that the franchises can always gain the specific benefits from the main consumers awareness ,faithfulness and loyalty; on the other hand, it lessens competition during recession. The franchisee does not have to waste all the time, cost of expenditure and the effort in building up company goodwill and establish a famous brand name. For instance, a branded restaurant chain will maintain its sales and competitive power even in times of recession and huge competitiveness will be around in the catering or cooking industry as the whole brands name is clearly widely well knowned and recognized and favored by the people.

Second, franchisee can have a lot of access to the main big kinds of business management skills which are rarely easy to get a grip on. The franchiser usually has important business skills like: production management, financial management and marketing management. This in turn, increases the possibility of success of the business. A franchisee is always populated in every part of the world as they are very well known for what so ever they do as in catering or multi level marketing and so on. The bigger the power of dependingness of the franchisor company, which definitely has the big organization globally, which has a bigger organization, proves beneficial to the franchisee company, because, the franchisor company has a proven business concept and a thriving operational profile.

Like the advantages, there are many disadvantages too. The disadvantages to franchising are that the franchisor will lose control over certain aspects of the job. The franchisor will also lose hands-on involvement with the individual operations and the franchisor will also be limited by contract to the actual changes which can and may incur in the franchise units operation structure. The prerequisite to compensate the franchisee payment and it expenditure to the franchisor can be too large a sum (in some cases). The bigger and famous the brands name the larger the amount to be paid. Second, all the goodwill accumulated by the franchisee in the local market will be transferred to the franchisor once the franchise contract expires or terminates. Years of hard work melts in moments with the transfer. Third, the franchisee does not have much freedom in his business. It is necessary that he has to adhere to the standards, policies, procedures and functioning systems of the franchisor. Creativity in one’s own business is curtailed completely. Fourth, corporate profit margin reduces because of payment of royalties and other associated levies.

Many entrepreneurs think that owning and running a franchise business guarantees more revenue, profit and returns; this is not always be the case, while it may be true for the short term but long term case studies show that starting your own business will be cheaper to run and pay off better than franchising.

Communication is one of the most important things between a franchiser and franchisee, when there is some sort of miscommunication the business is likely to fail. Which will end up costing the franchisee a lot of time effort and money just as it will the franchiser. Especially if the franchise is opened in a country overseas. The cost will automatically increase due to taxes imposed by respective governments.

As a franchisee you will not be able to operate your business to your fancy because the franchiser will already have some sort of business plan. Even though the franchisee may be better able to handle and organise the business but because they are tied to the brand they’re representing therefore makes business operations difficult.

Furthermore, if the franchisee isn’t able to uphold the franchiser’s image and standards, it will reflect poorly on the brand itself, which will then slow business down for both the franchiser and franchisee and in addition will make future entrepreneurs think poorly of the company and will lead them to not invest in the particular franchise as well.

The success of a franchise depends on both the franchisor and the franchisee, on the product and the business strategies. To run a successful franchise one has to study the market, the franchisor and the product carefully and judiciously.

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