Supply Chain

Advantages and Disadvantages of Franchising the Business

There are Advantages and disadvantages of franchising. You can expect so many higher things but the franchise agreement usually includes good aspects as well as bad aspects for the business to run. Business Acquisition is very hard thing as well, and it’s way different than franchising.

Advantages of Franchising

Franchising arrangement is a symbiotic one for the franchisor and the franchisee. Following are, for example, the distinct advantages that franchising provides to the franchisee:

  1. Franchising makes the task of getting started easier because the franchisee gets a business format already market tested and found to work. Hence, buying a franchise is so far safer than trying to start a business.
  2. It reduces chances for failure. Here, significant to mention is that fewer than 10 percent of all franchise fail. In dramatic contrast with this is the fact that two out of every five entrepreneurs who start on their own fail within three years, and eight out of every ten fail within ten years.
  3. A well-established franchise brings with tit the very important advantage of recognition. Many new businesses experience lean months, or years, after start-up. Obviously, the longer the period the business must experience it, the greater the chances of failure. With the well-tested franchise, this period of agony may reduce to only weeks, or perhaps just days.
  4. Franchising may increase the franchisee’s purchasing power also. Because, being part of large and that too recognized organization means paying less for a variety of things such as suppliers equipment, inventory, services, insurance, and so on. It also can mean getting better service from suppliers because of the importance of the organization (franchisor) of you are part (franchisee)
  5. One gets the benefit of the franchisor’s research and development in improving the product.
  6. The franchisee has the protected or privileged rights to franchise within a given area.
  7. The prospects of obtaining loan facilities from the bank are also improved.
  8. The backing of a known trading name (franchisor) becomes quite helpful while negotiating for good sites with setting agents or building owners.

Disadvantages of Franchising

Franchising is not an unmixed blessing. There are some disadvantages as well associated with a franchise arrangement. The main ones are listed as follows:

  1. Unlike entrepreneurs who start their own business, the franchisees find no room or scope of enjoying their creativity. They have to work as per the given format. One classic example of regimentation in franchising can be found in the McDonald’s restaurant organization. A McDonald’s franchise is given very little operational latitude; indeed, the operations manual attends to such minor details as when to boil bearings on the potato slicer. The purpose of these restrictions is not to frustrate the franchisees, but to ensure that each outlet is run in a uniform, correct manner.
  2. A number of restrictions are also imposed upon the franchisees. Restrictions may relate to remain confined to product line or a particular geographical location only.
  3. Franchisees usually do not have the right to sell their business to the highest bidder or to have it to a member of their family without approval from the franchisor.
  4. Though the franchisee can build up goodwill for his or her business by his or her efforts, goodwill still remains the property of the franchisor.
  5. The franchisee may become subject to fail with the failure of the franchisor.
  6. Another disadvantage facing franchisees is that franchisors generally reserve the option to buy back on outlet upon termination of the contract. Many franchisees become vulnerable to this option. As such, they operate under the constant fear of non-renewal of the franchise arrangement.
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