Franchise - what are its advantages and disadvantages

Service Business

Franchising is based on an agreement between the franchisee and the franchisor, which are two independent companies that work together to achieve higher profits. Franchising is a common business model and its popularity comes with mutual benefits. Unfortunately, the advantages are not everything - the franchise also has disadvantages, which we will talk about in a few words in the article below.

Franchise - benefits for the franchisee

We will begin our discussion of the qualities of a franchise by looking through the eyes of the franchisee. For this party of the contract, the great advantage is that there is no need for significant capital. Franchising assumes that an entrepreneur does not have to build a business from scratch - he gets the brand and knowledge capital from the franchisor under the contract. And this means savings on advertising and training subordinates. Ready solutions - proven in practice - mean lower business risk. You do not even need to have any experience in a given industry to have a chance for market success.

As mentioned earlier, franchising is basing the foundations of your own company on a brand already existing on the market. A well-known and promoted brand with a large number of regular customers is a real treasure. The franchisee basically comes to the ready, does not have to build recognition or a consumer base.

Another advantage of the franchise from the point of view of the franchisee are easily predictable profits. When starting a new company, the future is always uncertain, and in the first months of operation it is difficult to expect profits. Franchising is a support from a large corporation with a stable position on the market, which means greater stability of the business and the prospect of higher revenues soon after opening the business.

Franchise - franchisor benefits

Now let's turn to the other side of the franchise agreement, the franchisor. This one benefits primarily in terms of a greater number of distribution channels, which translates into a deeper penetration of market segments. Franchising is also a good method to enter foreign markets. The franchisor does not have to deal with the tedious process of expanding subsequent branches in the country and abroad - by selling know-how, he transfers this task to the franchisee. The great advantage for the franchisor is the lack of direct supervision over the ever-growing staff - this is also the role of each individual franchisee. Here you can see a significant saving of the franchisor on personnel administration. Franchising is also a huge advantage for the development of the brand itself, because the more branches, the more recognizable it is. Consumers remember its logo and trademarks, which contributes to higher corporate profits.

Franchise - disadvantages from the point of view of the franchisee

You can see with the naked eye that the franchise has many significant advantages. Unfortunately - in this barrel of honey you can find a large tablespoon of tar. Let us now describe the disadvantages of a franchise, looking at it through the eyes of the franchisee. Here, first of all, the lack of independence in running a business should be mentioned. Each franchisee is controlled by the franchisor - to a greater or lesser extent. The corporation behind the brand first of all checks the quality of the offer in a given branch, which is understandable in view of its interest.

Little independence under the franchise agreement also applies to decisions made by the franchisor. The franchisee usually has little influence on them - even when they negatively affect the success of the business. Pitfalls for the franchisee may appear in the franchise agreement itself. Such a document may contain clauses unfavorable for him - for example, regarding the territorial limitation of his business or the possibility of reselling the branch he runs.

Franchise - disadvantages from the point of view of the franchisor

A franchise network can be difficult for a franchisor to effectively control and manage, especially in the context of overseas affiliates. As you can guess, both at home and abroad you can find dishonest and unreliable contractors - therefore the process of selecting franchisees is quite a difficult task.

It should also be remembered that franchising means providing the contractor with a brand, priceless knowledge, market place and group of customers. It may turn out that when the franchise agreement expires, the dishonest franchisee will use the advantages obtained to compete directly with the former patron.

In the previous paragraph, we talked about how control can be a pain for the franchisee. As it turns out, it is also a big problem for the franchisor, especially when it comes to a really extensive network of branches. And too little supervision over contractors can be disastrous for the financial results and brand reputation.

To sum up - franchise is a great choice for many companies, offering a wide development perspective. On the other hand, we must not forget about the disadvantages of such a business model - knowing them, you can avoid many unpleasant consequences associated with them.