Advantages Of Franchise

A franchise allows an individual to obtain the trademark, operation processes, and proprietary business knowledge. It lets the franchisee run production under the franchisor’s name. Not only that, but the franchisee also gets to distribute the products under the trademarked name of the franchisor. They pay a sum of money and annual licensing fees to the franchisor in royalties. 

It has gradually become a popular way for entrepreneurs to start their businesses. There are many advantages of investing in a franchise. These advantages of the franchise have made it attractive to potential business owners who want to start up. As success is not always assured, certain disadvantages come with the many benefits that a franchise offers.

Advantages Of Franchise

Usually, an entrepreneur’s risks are acceptance of the products, expertise in management, capital, and sound knowledge in operations and the market. The most important advantage of a franchise is that it minimises these risks for an individual looking to start a new venture, to a great extent.

Let us elaborate on the various advantages of the franchise–

1. Product Acceptance

An entrepreneur would typically want to franchise a company, the product, and the service accepted on a large scale. This way, the franchisee gets to save on its resources trying to establish the credibility of their business. This credibility already exists depending upon the number of years the franchisor has managed to exist.

Let us take an example of an entrepreneur trying to start a venture of sandwich shops. The individual will have to go through a lot of time to build up credibility and gain a reputation in the market. But the entrepreneur can save itself from this hassle by buying a franchise of Subway, a U.S-based brand running successfully for many years. The company can spend millions of dollars on advertising and has built a good image of the products and services.

2. Management Expertise

Many Entrepreneurs who are starting up cannot manage and run the operations of their businesses. But if they buy a franchise of a company, they have to undergo a training program in which they are taught the many aspects of operating the franchise. Based on its requirements, the franchisor offers managerial assistance. 

Officials of the franchisor pay visits to the local franchisees to discuss any new developments and advise if any help is required. For example, McDonald’s has a school to train all the franchisees. This training extensively covers various aspects of running the franchise like accounting, marketing, production, and much more.

3. Capital Requirements

Starting a new venture, big or small, is expensive. A franchise can readily offer support to an entrepreneur that can save a lot of time. Sometimes, the franchisors cover the initial cost of starting the franchise by an individual after analysing the location. 

If the franchisor is a big company, the franchisee can also benefit from insurance as they become a part of the parent company. They also benefit from this as they market their product locally and nationally. This enhances their credibility.

4. Operating And Structural Controls

Maintaining the quality standard is essential. The franchisee has to be consistent with the image of standardisation of products and services as the expansion of the business depends on it, especially in the food industry. 

Decisions on the costs and maintenance of inventory and the cash flow lie under administrative control. This also includes ensuring good and consistent service control by training and hiring/firing individuals. These guidelines are usually provided in the legal agreement. 

Disadvantages Of Franchise

Though there are many advantages of the franchise, it comes with its share of some negative aspects. They are –

• Failure on the part of a franchise to maintain its services and product quality as per the guidelines set by the franchisor can make them suffer a considerable loss. 
• The franchises have to adhere to the franchisor’s operations rules strictly. They have no freedom to change or adjust them to the local demands. 
• It can become more costly in the long run. Apart from the initial investment of buying a franchise, there are specific managerial fees, ongoing royalties, and mandatory purchase of inventory products which is very costly.
• The parent company can go out of business. This is a risk of investing in a franchise.
• The franchisee cannot sell the franchise to just anyone. The buyer has to be approved by the franchisor.

Conclusion

Nowadays, people are eager and interested in investing in a franchise as many successful franchises are running in the market. It is a tried and tested business model for entrepreneurs to start. But, there are specific cons to buying a franchise. Before purchasing a franchise, an entrepreneur must look into every detail of the parent company, its credibility, reputation of services, and success rate in different locations.