As with any other business, franchising has a number of advantages and disadvantages. Keeping these in view, an investor can decide whether they want to open an independent business or a franchise.
One of the major advantages of franchising is that the company would deal with most of the financial aspect of the business. Even though the applicant needs to provide the franchising fee and other fees later on, the major part of the assets would be taken care of by the company. Also, the company would provide trained employers either initially or on a long-term basis. Even if this were not the case, the company would train all the new employees, saving the training costs for the franchisers.
Franchisees need to provide an initial franchise fee as well as some amount of capital as a security deposit. This will definitely ensure the franchise will be run with dedication, as no franchiser would wish to lose a lump sum in capital to the company.
Franchising indicates the company already has a good standing and wishes to expand. So the customer base is already built and the franchising should have no problems even during the initial stages. This will ensure good business right from the start and ensure that the franchiser feels motivated by the response.
Also, franchises can attain growth fairly quickly compared to the regular businesses. This is because there is no limit to the number of franchises that can rise under a particular company. There is no way a company can open branches at the same rate as franchises. Also, the companies get franchise fee, franchise royalty, discount from vendors, better lease options, and better discounts on equipment and raw materials. This indicates that the companies get money from a number of sources when compared to individually owned companies.
Franchising could be a bad option for the franchisee if the business is already successful and has a good standing in the market. Also, the company gets to control the franchise and not the owner. So, even though a franchisee runs the business, the company pulls all the strings. The company would make all the major decisions and the franchisee usually does not get any say in the matter except when it does not really affect the company’s policies.
Even though penetrating the market is easier with franchisees, it might involve a lot more legalities when compared to that of an individually owned business. This might ensure taking up more time before the franchise being able to attain a strong footing in the market.
The company must be able to deal with the rapid growth of the franchisees as such situations might, at all times, require excess staffing, and excess training materials. Also, they must take care to avoid any kind of litigations with respect to the franchisees.
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