File Name: advantages and disadvantages of franchising .zip
Motivated and Effective Management. The local management of each franchised unit will be highly motivated and very effective.
Rather than carrying out a company formation to start a new limited company, people often buy into an established franchise to get started in business. But what are the advantages and disadvantages of a franchise? As a business structure, a franchise can certainly be an appealing option. With a number of advantages, it is often the choice of those looking to start a new business without the risks associated with going out on their own. A franchise offers the advantage of operating under the banner of an already established business.
The ideas, the brand, the operating techniques and much more are already tried and tested and in place ready to be implemented again and again at a new location as each franchisee takes up the mantle. Operating under the banner of a franchise allows a franchisee to take advantage of the previously established brand of the business. This means there will in theory be far less work and cost involved in trying to establish and build on the brand of the business.
It will already be known and trusted by the market and therefore should produced a steady stream of brand-loyal customers. Adopting a franchise means the advantage of the franchises trademark and the benefits of a registered trademark. Yet another advantage of franchises is the fact that acquiring business finance is generally easier. Investors are far more willing to invest in a business with an established network, secure brand and effective support structure.
In some instances, finance may be acquired from the franchisor, making life even simpler for the new business. The franchisee can also take advantage of the numerous business relationships already established by the franchisor. In all likelihood, relationships with suppliers and perhaps distributors will already be in place and easy to manage.
The advantages of already established relationships with advertisers and marketing teams may also be of benefit to the new business start-up. Franchises offer the advantage of a support and security system. Often franchisors will offer training schemes and support with things like the management of accounts, sales, advertising and more.
These sorts of things may well be included in the price of the franchise fee. The security offered by the franchise can give the impression that the business will be less likely to fail. People often think that another advantage of starting a franchise is that they will make more money. The fees that a franchisee pays to the franchisor often means a big cut in profit and due to the limits imposed by the rules of the franchise it is often less easy to invest the profits in a tax-efficient way as you could by forming a new limited company.
A franchisee might benefit from higher profits in the beginning, but in the long term, they will often find that starting their own business would have been more profitable.
Just as with any business model, there are disadvantages to setting up a franchise. Quite often people are under the mistaken belief that the advantages outweigh the disadvantages, but this is because they are commonly blinded by the potential risks of starting a new business from scratch.
The formalities of setting up a limited company under which the franchise operates will be the same as if you were starting your own business. The first and most significant disadvantage of a franchise is the fact that the franchisee has no control of the business or how it is run or very limited control.
The rules of the business are already established and part of the franchise agreement. How the business operates is set out by the brand of the franchise and it is very rare that a new franchisee will be able to operate outside of these borders.
Finding the cheapest suppliers to minimise your overheads and maximise your profits. You will be tied to the suppliers dictated to you by the franchise agreement. The obviously disadvantage for a franchisee here is not only the lack of control, but the reduction in potential profits.
Another serious disadvantage of a franchise is the risk that others might damage the reputation of your business. As a franchisee you would rely on the brand of the business to bring you customers. If other franchisees did something to damage the reputation of the brand, this would have a knock on effect on your own business.
Potentially this could damage your sales and overall profits. This is a big disadvantage for most franchises — the costs. A franchisee will often be expected to pay an initial cost to buy into the franchise agreement. As part of the continuing franchise agreement, they will then be paying on-going fees for the support and training provided by the franchisor. In the long term, this means a restriction to the amount of profit and money in your pocket that you can make as a franchisee.
Completing a company formation to start your own limited company will often be the better choice, as there will be fewer restrictions on how you operate your business and more potential avenues for profit, without the overheads. The franchisor will expect a cut of your profit. It is important to understand how the franchise fees work. Often these will be fixed periodic fees often annually plus a percentage of the turnover the franchise business makes.
You do all the hard work and still have to pay them for the privilege of using their name and support. When times are hard, this might mean a further reduction in already low profits and a struggle for your business. Selling a business can be challenging. Selling a franchise business can have potentially more pitfalls as any buyer is bound by the terms that have been negotiated with the franchisor when a franchise was granted. The initial franchise agreement will probably have been negotiated for a fixed period, so even if the business has been successful, the terms of the franchise will have to be re-negotiated on renewal and any potential buyer may be deterred by the uncertainty of the terms the franchisor may seek to introduce on renewal.
As with the other legal forms of business, the advantages and disadvantages of a franchise need to be balanced and considered before starting your new business. The main advantage is clearly the security, but the disadvantage of the costs and reduced profit and control might put people off.
Certainly, the majority of people would choose to start their own business rather than get tied in with a franchise agreement. That is not to say that setting up a franchise is not worth consideration.
A number of people have come to us looking to setup a franchise for their own business; forming a series of limited companies to sell onto other people looking to start their own business, but looking for the advantages and safety net of a franchise scheme. Excellent article which clearly lays out pros and cons whilst I search for best approach for business startup. I would like to add with my limited knowledge so far that all franchises will not be the same as some require specialist equipment and advice on capital investment.
Other franchises are just selling a business model and with a modicum of common business sense and desire to work a little harder in the beginning these could be overcome by the sole trader. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Leave a Reply Cancel reply Your email address will not be published.
Buying a franchise can be a viable alternative to starting your own business. Listed below are some advantages and disadvantages of buying a franchise. Franchising is seen by many as a simple way to go into business for the first time. But franchising is no guarantee of success and the same principles of good management—such as informed decision-making, hard work, time management, having enough money and serving your customers well—still apply. Be cautious when buying into a franchise if you have to develop the market and the brand in your designated area. Make sure your investment generates healthy returns and a capital gain when you sell. Home Starting a business Buying a business Buying a franchise Advantages and disadvantages of buying a franchise.
There are three major types of franchises — business format, product, and manufacturing — and each operates in a different way. While there are many ways to differentiate between different types of franchises size, geographic location, etc , we will be looking at how different franchisors allow franchisees to use their name. On this basis, there are three different types of franchise:. In business format franchises which are the most common type , a company expands by supplying independent business owners with an established business, including its name and trademark. The franchiser company generally assists the independent owners considerably in launching and running their businesses. In return, the business owners pay fees and royalties. In most cases, the franchisee also buys supplies from the franchiser.
Businesses expand by franchising as way of accessing external capital to fund the growth of new stores or outlets that are operated by committed and profit-driven franchisees that are likely to be more diligent and focused than employed staff. Franchisees are attracted to franchising for the prospect to become their own boss without re-inventing the wheel. The old adage in business for yourself, but not by yourself accurately describes this motivation. Below is a summary table of advantages and disadvantages of becoming a franchisee. A more detailed explanation of each item is listed at the end of the table. Asia-Pacific Centre for Franchising Excellence 1 www.
franchising, brings together a “bullet point list” of the advantages and disadvantages. (both business and legal) of moving to a franchised system of operation.
For these businesses, franchising can be a better alternative because the franchises are set up in locations near to the people that are demanding their products or services. However, according to Carlos Garcia, the franchisor of Total Clean, franchising is not an easy way to grow your business. The table below shows more advantages and disadvantages of franchising for the franchisor:. Does my business suit the franchise model? What do I need to consider when setting up the franchise?
Rather than carrying out a company formation to start a new limited company, people often buy into an established franchise to get started in business. But what are the advantages and disadvantages of a franchise? As a business structure, a franchise can certainly be an appealing option.
Buying a franchise can be a quick way to set up your own business without starting from scratch. There are many benefits of franchising but there are also a number of drawbacks to consider. Read more advantages of franchising. Read more disadvantages of franchising. Breadcrumb Home Guides Buy or sell a business Franchising Advantages and disadvantages of franchising.
The fact of the rapid spread and rapid development of franchising is, firstly, to mutual benefit for both the franchisor and the franchisee and, secondly, to reduce the.Reply
PDF | This report is an attempt to compare the advantages and disadvantages of franchising which is one of the most known business model.Reply
Advantages of franchising mode are following Kotler, , p.Reply