The business expands as capital becomes available from franchisees instead of taking on debt through loans. The franchisor also shares minimal risk with the franchisee because the franchisee puts their name on the deed for the physical location of the business and lowers the franchises overall liability. Opening the first unit of a business is costly and time consuming.
Opening a second unit can be almost as difficult. When that burden is shared with another business owner, it makes the process more efficient and takes the onus off the initial business owner.
When trying to grow your small business, starting a franchise can make opening multiple locations a much simpler process. One of the big stresses as a business owner is hiring and managing employees.
As a franchisor, the only support that you have to provide to the franchisee is training and business knowledge. In general, the franchisor has no hand in the management, hiring, and firing of employees. This minimal employee supervision allows the franchisor to focus on the growth of the business instead of day-to-day operations.
Instead of worrying about whether an employee shows up for their shift or not, the franchisor is focused on the big picture for business success. One of the many benefits of franchising is increased brand awareness. The more locations the brand has, the more people who are aware of the brand. And the more these customers come to know and love the brand, the more profitable and successful the brand can be.
This increased brand awareness of a multi-location franchise can be highly beneficial to the franchisor and their franchisees—a win-win. One of the biggest benefits to the franchisor in a franchise agreement is the ability to expand without an increase in risk. Because the franchisee takes on the debt and liability of opening a unit under the name of the franchise, the franchisor gets all the benefit of an additional location without taking on the risk themselves.
Additionally, the franchisor is often further insulated because the franchise is incorporated as a new business entity, leaving the original business owned by the franchisor as a separate entity from the franchise.
A franchise lawyer can help to set up the terms for this type of protection within the franchise agreement. While franchisors receive a lot of benefits from starting a franchise, there are also some disadvantages to consider. When a business owner opens an independent business, they maintain complete control over their brand and every decision that happens within the business.
They will think and act differently, and your brand could wind up suffering because of it. Any time you enter into a close business agreement with other people, you open yourself to the risk of legal disputes.
While a well-crafted and lawyer-approved franchise agreement should limit a lot of the possibilities for legal disputes between the franchisor and franchisees, these disputes are still possible. Any legal disputes that must be resolved in mediation or through the court system can be costly in both time and money, which takes away from the success of the franchise.
While much conversation is devoted to the initial investment that a franchisee must make in the franchise, that ignores the initial cost that is taken on by the franchisor. A franchisor must make sure that the franchise agreement is written clearly and reviewed by a lawyer experienced in franchise law. You may also hire a franchise consultant for expertise during this process. Starting a franchise requires an initial investment of both time and money on the part of the franchisor.
While not entirely a drawback, dealing with the federal regulations set down by the Federal Trade Commission for franchises can be a nuisance for franchisors. These regulations ensure that franchises are operated fairly, but it also requires time and effort from the franchisors to meet all of these regulations.
Franchisors always jump-start you with the precise training you need. They can call or email one another to hone best practices for overcoming any obstacle. You are investing in a proven system, and if you go rogue, you might not achieve the results you want. In your due diligence of examining franchise advantages and disadvantages, you should ask about opportunities for adding units to your business portfolio.
Franchise Consultants , as well as franchisors, will be able to advise you. You are not concerned about the type of business you buy but want to have the freedom to run it your way. You would be okay with a certain degree of risk but also recognize the advantages of an established system of operations. This is a business you buy outright and have the freedom to run your own way. The benefit of a business opportunity is that they generally provide you with a successful business model.
Marketing assistance and training, however, may be underdeveloped or nonexistent. The initial investment is usually lower than for a franchise and there are no ongoing royalty fees. The risk factor is probably greater than for owning a franchise but could be less than starting your own business. For a majority of people, franchising has proven to be a viable way to become a business owner.
For the most part, it offers the lowest risks and the highest level of support. They will keep in touch with you from the very beginning to years down the road and they have websites, toll-free numbers, and dedicated staff to make sure all your questions are answered quickly.
The cost of this continued support is usually in the form of royalty payments based on earnings but most franchisees feel the benefits are worth the expense. Research and development are possible because of feedback from those in the field and this cooperative involvement is a hallmark of a well-run franchise business.
You can totally change careers without years of schooling or apprenticeship or research. Franchising Advantages and Disadvantages in 3 Different Scenarios. Franchise Owners Advantages. You might not be able to make changes to suit your local market. Below we discuss the advantages and disadvantages of franchising.
Promotes Multi-Unit Expansion — The most important advantage of franchising is that allows you to achieve the multi-unit expansion of your business. Disadvantages Of A Franchise. Setting up a franchise has its disadvantages too. Not every entrepreneur wants to be locked into a deal or surrender their creative control. They want to own their business properly and make changes as they see fit. Franchisees have little to no control over how their new business is run.
The rules governing its operation are clearly outlined in the franchise agreement. The following are some of the disadvantages of buying franchise. No decision can be taken by the franchisees without consulting the franchisor. 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.
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