More and more people are choosing to run franchises. This is a very good option for people who are not experienced in running a business. But what are they actually? What are the pros and cons of franchising? What are the opportunities of franchising? That's what you'll find out as you continue reading this article.
What is a franchise?
A franchise is a business that operates under the banner of a larger chain, or franchisor. Surely you have encountered franchising more than once in your life and are not even aware of it. Examples of franchises include such companies as McDonald's, Subway, Starbucks or KFC.
Franchisees act in their own name and on their own account. They must follow the concept set by the franchisor, who transfers his know-how and business concept to them. The basis for establishing this type of cooperation is a contract. It regulates the rights and obligations of both parties.
Learn more about what a franchise is from the article on our website.
Advantages of franchising
There are certainly many advantages of franchising. However, this does not mean that it does not have any disadvantages. Let's first focus on the more optimistic sides of this business model. Here are some of the franchise advantages.
A sense of security
This is one of the main advantages of franchising. By owning a franchise, you are buying an idea that has already proven itself and succeeded in the market. You benefit from the knowledge and experience the franchisor has given you.
You get access to ready-made business models that you will be obliged to follow. It keeps the risk of failure very low. Besides, the franchise advantages are that you save the time and money you would have spent on building your brand.
Professional assistance and training
The franchisee can constantly count on support from the franchisor. He is the one who provides support in determining the assortment. The franchisor is also responsible for training on employee recruitment and accounting. There is no need to hire qualified consultants or pay someone for support.
In addition, the franchisor will help you find a suitable location and get your business up and running. On top of that, it negotiates terms with suppliers and determines the right level of stocking.
No need for large start-up capital
Owning a franchise means you don't have to build your business from scratch. You get a ready-made brand, and with it comes a logo and training. This gives you less risk and more credibility. With the recognition that a brand has, you can estimate how successful you will be from the beginning
Reduction of costs for advertising and marketing
You do not incur any expenses related to the advertising campaign. It is the franchisor's responsibility to ensure proper marketing. The advantage of franchising is that you don't need additional funds for advertising. Especially if you are just starting out in franchising. With the recognition of a particular brand, customers will come on their own.
Disadvantages of franchisor
You might have noticed, there are many advantages of franchising. As for the disadvantages, those also exist. After all, franchising can also be a threat.
Costs for granting the license
In the beginning, you have to bear the cost of the initial fee. It is often impossible for a budding entrepreneur. Next, you regularly pay a certain amount to the franchisor. This amount depends on what percentage of earnings is included in the contract.
It also happens that the minimum amount is specified in the contract. Then the franchisee is obliged to pay it, regardless of what the earnings were. A certain percentage is still added to the minimum amount.
Limited independence in running the business
You must run the business according to the franchisor's instructions. There is no room for creativity and spontaneous changes. By owning a franchise, you are subject to regular inspection by the franchisor.
Every idea or innovation must be approved by the franchisor, even when the fate of the company is at stake. This may seem to be one of the biggest disadvantages of franchisor.
Responsibility for wrong decisions of the brand
Any erroneous decisions or brand crises reflect on franchisees first. It is the franchisees who suffer most from boycotts and changes in consumer preferences.
Besides, one of the disadvantages of a franchisor is that its mistakes can prove detrimental to franchisees. Any mistakes regarding network management or misguided investments or marketing campaigns can result in losses.
Risk of non-renewal of the contract
A franchise agreement is concluded for a fixed period. This means that you are never sure if the franchisor will agree to extend it. This puts you in a precarious position.
Failure to fulfill the terms of the agreement can face many consequences. There may be a penalty or your income may be reduced. Continuous negative reviews during inspections will lead to termination of the contract. It is also a way for franchisors to weed out the weakest units.
As you can see, there are many pros and cons of franchising. Is it worth the risk? Certainly, if you are aware of it and have a definite plan and outlook. There are many opportunities of franchising you can take advantage of. Knowing all the advantages and disadvantages of franchising, making the right decision will be much easier.
