Advantages and Disadvantages of Franchising

Advantages

Experience of the franchisor
A strong argument for buying a franchise is the experience of the franchisor. Franchises such as Burger King, MacDonald’s, Midas Mufflers, and others have been in business for many years and you can take advantage of their consumer recognition and proven business formulas.

Training
Any franchisor who has been successful for many years will, in all likelihood, provide excellent training with ample resources at the home office to get you started in your own franchise.

Buying and advertising
One of the fastest ways to drain cash is to spend heavily on advertising. As a franchisee, you can take advantage of the public awareness of the franchisor’s name and its national advertising budget. The franchisor will have volume purchasing power for supplies that may (or may not) be passed on to the franchisee.

Research and development
The R&D budget for a franchisor will often be substantial, providing the franchisee with new products and services as well as advice on how to introduce the new product or service.

Business synergy
When you buy a franchise, you are, in effect, buying into a family of other franchisees. You are all working toward the same goal and have adopted a similar mission on behalf of the franchisor. Some of the best ideas for the franchisor come from the “family” — you become part of a network of franchisees who regularly talk to the home office as well as other franchisees.

Disadvantages

Added expenses
All franchisees are required to pay an up-front fee to the franchisor in order to use the franchisor’s name and open shop. These fees can run into six figures. The franchisor will usually require ongoing fees as well. For example, up-front fees can be very steep. This money could go towards starting your own store.

Uniformity
Individuals who have problems taking direction will find franchising a difficult business route to take. Franchisors achieve success through the development of conformity among all the franchisees from management style right down to supplies. If adhering to rules bothers you, you should look into some other form of business structure.

False expectations
It is easy to fall into the trap of feeling that, just by buying into a popular franchise, you will be an instant success. Franchising is just like any other business. You must work hard and make sacrifices to achieve a measure of success.

Cannibalization
If you live in a metropolitan area, the chances are good that you will see several like franchises within a ten-mile radius. The franchisor will, one way or the other, realize profits through this situation. But for you, the individual franchisee, this situation can be a competitive nightmare that might ultimately force you to close your doors.

International vs. domestic
If the franchisor has headquarters in a foreign country, problems may arise if you require assistance or need to speak to a company representative in person. Make sure the franchisor has an office in your country or, at least, sends a representative to your country on a regular basis.