Advantages and disadvantages of franchise - good benefits and bad benefits of franchising a business
You want to start your own business after saving up a lucrative capital enough for it but you’re having loads of ideas and business plans. One night you were thinking of a grilling resto at the heart of the city. The next day, you decided to switch to coffee shop with a fancy tempting name inside your head. And now, because of the truck of business opportunities competing to be chosen inside your bankable head, nothing is quite certain. So after that crazy business feasibility study of yours, you end up choosing to franchise…franchise a famous fast food restaurant to be exact.
Top Ten Reasons Why You should Franchise and Why You shouldn’t
Before really hitting franchising, you must first really be consistent in what do you really want. You must also study everything, not only knowing about the franchising fees and ROI, then learn every point and every side about franchising. Do you really wanna be a franchisee or you really wanna start your own business and perhaps be a franchisor someday? Business requires thorough and meticulous preparations before signing a deal. Learn and know the advantages and disadvantages of franchising a business. They are listed and explained below.
Top Ten Advantages of Franchising a Business
You don’t need plans and feasibility study. In franchising a business, you don’t need to brainstorm about everything starting from scratch –about your business, the best name for your business, a trademark of your business, the needed employees, the design of your site, the marketing strategies for such type of business, advertising, the financial aspects, the social aspects, SWOT (strength, weaknesses, opportunities and threats) about your product or market place, all aspects involving and revolving around your business –everything just everything about starting your business and operating your business has already been laid out on the table and already been ironed out.
A sure way to profit big time. Taking up a franchise means taking up an already profitable business. Studies show that franchising a proven business is ninety percent proven profitable while starting a new business is ninety percent failure. There’s no trial and error about trying out a new product line.
You are known already even before your opening day. Even before your site was in construction, people knew your business already. You don’t have to find people and customers, customers and clients will find you. You’re known already because you’ve got the name of a well-known business. Carrying the franchise name and trademark is the loudest form of advertisement.
You save a lot of time. Just imagine the huge amount of time in starting up a new business from scratch, it’s so nerve-wracking, the what-ifs and detailed methodology study can even make you toss and turn at night. And you need a dam hell lot of time to implement all aspects of building a business. In franchise, all you need to do is be trained while your branch’s site is finishing in construction. Before you knew it, all proven operation and techniques are in your command in your own branch.
You have all the support. You will enjoy all the benefits of being a franchisee given by your franchisor in terms of marketing, advertising, customer service and relation, staff training and managerial matters, accounting and finance, daily operations and even problems regarding your franchised business. Being a franchisee, you become a part of a prominent business group that you can share ideas and interact.
You don’t need a specific degree or professional license to franchise a business. Anyone with a good moral standing, leadership skills, who is willing to spend time in managing a business and has enough capital, can invest in a company and start a franchise business. All you need to do is be trained and start to manage and be the boss of your franchised business.
You’re the boss. You may have a branch manager who manages the daily operation of your business, still you’re the boss. You may not visit every day; you hold your own time, you have all the say and everything won’t happen without a word from you and your signature. All you have to do is be in contact with your franchisor and be updated with everything going around your business and your network you are in.
Impressive ROI (Return on Investment). Investing and franchising in a well-known business will eventually result to higher ROI than other business types especially if the business has been operating profitably for 15 years or so. You can achieve the best ROI possible in your franchise.
High respect and high status. You’ll not only gain a prestige profile, you’ll also gain respect, first from all the people employed in your business and from the people who know your great achievement.
Great achievement. Ah, just the feeling you get when you have your own Starbucks Coffee, Taco Bell or KFC.
Top Ten Disadvantages of Franchising a Business
The huge amount of cost. Franchising a well-known business requires a huge amount of capital investment. The initial franchise fee won’t include the advertising fees, management service fee, marketing fees and others. Of course to franchise or not to franchise, you have to spend money to make money.
You can’t change anything. Because you’re not in control of everything, you can’t change a thing. The trademark, name, operations, product secret recipes, and all things that makes the business unique can’t be changed otherwise a major order and decision from the franchisor have been established. But you can always share ideas and suggest. You are bound by a franchise agreement and you are required to do what you signed.
Franchisor’s bankruptcy will be your bankruptcy. If you didn’t carefully choose a strong and reputable known company, your franchised business might be in jeopardy if the big company you’re franchised with has unfortunately become insolvent. Liquidation is highly possible too in a small business franchise or a cheap franchise opportunity you have dealt with.
Surely you need a very good lawyer and franchise consultants. You need to hire a brilliant and trusted lawyer for the detailed and thorough legal matters; it means you have to spend huge amount of cash for the lawyer’s expert advice.
Fault of one is fault of all. In franchise business, you’re in a network of hundreds or even thousands of branches. It means, all acquired the pretty name of the company (such expensive name, is it?) and whatever misfortune of one branch is a misfortune of the other.
The franchise agreement includes strict restrictions. When you signed the franchise agreement you are bound to do the deal on how to run and manage your business. Such may not be perfect and burdensome for you local market. Most franchisors oblige territorial restrictions on their franchisees like limiting the franchisees ability to market or sell outside of a clearly-defined geographic area.
You can’t just sell your franchise to anyone without the approval of your franchisor. If ever you decided to sell your franchise, the final decision and options will be from the franchisor.
Conflict may arise. Because you are under your franchisor and you can’t just do everything beyond your control, conflicts and issues may arise between you and the main office.
All profits are shared with the franchisor. As a franchisee, you are bound to agree to share a percentage of your revenues with your franchisor.
You’re not original. You just franchised, you didn’t build your own business using your own ideas and plans.
© Copyright 2014 by Fehl Dungo All Rights Reserved
**Photo credit: from leahcyam photobucket
Cathy Nerujen from Edge of Reality and Known Space on July 19, 2013:
This is a great hub on Franchises, Fehl. You provide lots of useful information in this. As someone who used to run a small cafe with a school friend for a while, I can say that the prospect of turning to a franchise is something we thought of, but we had our cafe was located in a rubbishy back street. LOL. It was cheap but had few visits and customers.
Thank you for a very useful hub. :)
twentyfive (author) on September 06, 2010:
Yep for me, the biggest factor to consider in franchising a business is the place and your target market. I remember your oil spill hub, Prof. A, a gasoline station franchise sounds awesome ;)
Mentalist acer from A Voice in your Mind! on September 06, 2010:
It's a good idea that the francise you choose reflects that area's need for that type of business and your set;)