The advantages and disadvantages of franchising

Franchising is a joint venture  between a third party (franchisee) and your business (franchisor). The development of a successful franchise network requires careful planning and continuous monitoring.

The advantages of franchising can be coded as follows:
  • You may achieve a fast business growth without major capital investment.
  • You can quickly develop a number of stores to distribute your products.
  • Franchisees invest their own money in their operations, therefore they are highly motivated to maximize sales and minimize costs.
  • Franchisees may have substantial local knowledge which may be good for your business.
The disadvantages are:
  • Your investment cannot be recovered until franchisees are appointed and you receive entry fees and then a regular income from them.
  • Some franchisees may try to reduce the amount of their management service fees by not disclosing all their sales income.
  • To protect your brand, you need to monitor the sales performance and quality standards of each franchisee.
  • A very successful franchisee may try to change the style and direction of your business.
  • A franchisee will gain in-depth knowledge of your business and may use it to set up as a competitor.
  • Franchisees cannot be treated like your company’s managers. They are independent businesspeople.
There are also other things to consider as advantages/disadvantages of franchising, but the above can be considered as the main items.    
 
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