Advantages and Disadvantages of Franchising

Contents

1 Definition of Franchising

2 Businesses for which franchising works best

3 Advantages

4 Disadvantages

Definition of Franchising

Franchising refers to the method of practicing and using another persons philosophy of business. The "franchisor" authorizes the proven methods and trademarks of his business to the "franchisee" for a fee and a percentage of gross monthly sales. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor. Agreements typically last five to twenty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.

Businesses for which franchising works best

Businesses for which franchises is said to works best have the following characteristics:

Businesses with a good track record of profitability.

Businesses built around a unique or unusual concept.

Businesses with broad geographic appeal.

Businesses which are relatively easy to operate.

Businesses which are relatively inexpensive to operate.

Businesses which are easily duplicated.

Advantages

Quick start

As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators). A well run franchise would offer a turnkey business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting

Expansion

After their brand and formula are carefully designed and properly executed, franchisors are able to expand rapidly across countries and continents, and can earn profits commensurate with their contribution to those societies. Additionally, the franchisor may choose to leverage the franchisee to build a distribution network.

Also with the help of the expertise provided by the franchisers the franchisees are able to take their franchise business to that level which they wouldn't have had been able to without the expert guidance of their franchisors.

Training

Franchisors often offer franchisees significant training, which is not available for free to individuals starting their own business. Although training is not free for franchisees, it is supported through the traditional franchise fee that the franchisor collects.

Disadvantages

Control

For franchisees, the main disadvantage of franchising is a loss of control. While they gain the use of a system, trademarks, assistance, training, marketing, the franchisee is required to follow the system and get approval for changes from the franchisor. For these reasons, franchisees and entrepreneurs are very different. The United States