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All About Franchising In Business

If you’re planning to begin your own business one of the important things you have to consider is whether you’d like to create an independent business or an established franchise. There are many benefits to franchising, but also disadvantages for both franchisors and franchisees.

If you are considering whether to become involved in franchising, you must be aware of the advantages of franchising. However, you must also consider the risks that you may be facing. In this article we’ll go over the pros and cons of franchising to help you decide whether franchising is the ideal choice for you.

Benefits of franchising to the franchisee

The franchisee is a third-party purchaser who buys the rights to use the brand directly from the franchisee (the proprietor of the name). The franchisee must pay a first annual franchise cost to the franchisor in exchange for the right to use their trademark as well as regular franchise fees to cover royalties, marketing and much more.

There are many benefits of franchising to the franchisee for the franchisee, such as:

1. Assistance to businesses

One of the advantages of franchising is the assistance in business that they get through the franchisor.

In accordance with the conditions in the agreement as well as the nature of the business the franchisee may be provided with a complete turnkey business operation. They might be given the brand name, the equipment, the supplies, and the marketing plan, which is basically everything needed to run the business.

Some franchises might not offer everything however, all franchises offer the wisdom and knowledge that the franchisee has. The knowledge they have is either stored in a searchable digital knowledge base or the number that can be used to contact an individual franchisor, the franchisee will have access to an extensive pool of assistance for businesses to aid them in the steps of owning and running the business. This knowledge is crucial for running a successful company and makes it easier to start a business by beginning from scratch.

2. Brand recognition

The biggest benefit franchisees gain when opening the franchise is recognition of their brand. If you were to start a business from scratch, then you will need to establish your brand and customers from the ground from scratch, which will take some time.

Franchises are, however are already well-known business with established customer base that are built-in. When you start an franchise that has this well-known brand, people automatically be aware of what you do and the services you provide in addition to what customers can anticipate.

3. Lower Failure rate

In general they have a lower rate of failure than solo companies. If a franchisee purchases the franchise, they’re joining an established brand and a community which will provide assistance and guidance and make it less likely that they’ll be out of the business.

Franchises, too, have already demonstrated their concepts for business and you can be confident that the services or products you’ll offer are popular. Read more on this website…

4. Purchase power

Another advantage to franchising is scale of the company’s network. If you’re a solo business and you need to purchase items or other supplies to create your products, you’ll pay more for each item because the amount you order is small.

But, a group of franchises can offer to buy goods at a substantial discount purchasing in the bulk. The parent company may benefit from the large size of the franchise group to bargain deals which each franchisee gets. Lower costs for products reduces overall operating cost for the franchise.

5. Profits

As a rule, franchises make greater profits than independently-owned companies. The majority of franchises have well-known brand names that draw customers in a flurry. This helps to increase earnings. Franchises that need the investment of money upfront to purchase the franchise get a good return on investment.

6. Lower risk

Beginning a business can be extremely risky. This is true regardless of whether an owner of a business is opening an independently-owned business or buying an existing franchise. However, the risks are lower when you open the franchise.

One of the main reasons franchise owners have lower risk than business owners who are independent is because of the franchise network. The majority of franchises are owned and operated by established companies who have tried and tested their business models of franchises across multiple markets.

This risk reduction could help you access loans, such as the best SBA franchise loans that can aid in the start-up of your company.

7. Built-in customer base

One of the most difficult aspects for any business that is new is locating customers. Franchises are, however have immediate brand recognition and a strong client base. Even if you’re launching the initial branch of a franchise in a small town it is likely that prospective customers already know about the brand through exposure to commercials on TV or trips in other locations.

8. Make yourself your own boss

One of the greatest advantages of owning your own business is the freedom to be the boss. If you decide to start a franchise you are your own boss and have additional benefits of getting support from the franchise’s base.

Being a business owner is hard work however, being your own boss, you can make your own schedule and have complete control in your work and even work at your home.

Franchises give you the opportunity to be your own boss, without the risks of creating your own business.

The disadvantages of franchising for the franchisee

Although there are many benefits of franchising, it’s mistaken to believe that there aren’t some disadvantages. Let us go over the pros and cons.

1. Regulating restrictions

While a franchise permits the franchisee to run their own business however, they’re not in complete control of their own business and cannot make decisions without considering the views from the franchisee.

The most gruelling disadvantage they confront is the fact that they have to adhere to the guidelines laid by the agreement for franchise. The franchisor has some degree of influence over the bulk of franchise’s business and the decisions made through the franchisor.

In accordance with the terms of the franchise agreement the franchisor is able to control all of the following areas of the business:

Business office

Hours of operation







Marketing and advertising

Conditions for resales

These restrictions are put in the law to ensure uniformity between franchises as well as the overall brand. However, they can be extremely frustrating and can feel restrictive to the person who is a franchisee.

2. The initial cost

Although the initial investment in the form of a franchise cost provides many benefits for those who are franchisees, they could also be costly, particularly in the case of joining a popular and lucrative franchise. This can translate into higher earnings, the process of acquiring this amount of money at first can place the financial burden on any business owner.

If you choose an inexpensive franchise, you’ll probably need to invest some thousand dollars. Although this could be considered a negative for franchises it’s essential to evaluate the benefits against the initial investment, and then determine the best amount for your business. Remember, there are franchise financing options that can help you find this initial expense.

3. Continuous investment

Alongside the initial investment that you’ll be required to put into an enterprise, franchises have also additional ongoing costs which are specific to franchises. In the franchise agreement the ongoing expenses of the franchise must be listed. The costs could include royalties fees, advertising expenses, as well as a charge to provide training.

You’ll need to keep these fees in mind while making a decision about whether you want to launch the franchise.

4. Possibility of conflict

While one of the advantages of having a franchise is the community of support that you get, it is a risk to have conflict. Any business partnership that is intimate that is characterized by an imbalance in power, can be a source of conflict if both parties will not be able to get along.

The franchise agreement sets out that the obligations of the franchisor as well as the franchisor, the franchisee is given little authority to enforce the agreement without the need for a expensive legal fight. It doesn’t matter if it’s a an absence of support or conflicting personalities and personalities, the closeness of business relationship between the franchisor and franchisee can lead to conflicts. A franchisor needs to be sure to screen potential franchisees prior making a decision to do business with them. As the franchisor, you must take advantage of this occasion to gauge about the character of the franchisor as well as their management manner.

5. Privacy of finances is not protected

Another issue with franchising is the lack of privacy. The agreement for franchises will state that the franchisor is able to supervise the entire financial system that is associated with the franchise. The lack of financial privacy is often viewed by the franchisees as a drawback of having a franchise. However it could be less of a problem when you are comfortable with financial advice.

Benefits of franchising to the franchisor

The benefits and drawbacks of franchising do not only apply to the franchisee, but of course. The franchisor must also consider both the advantages and disadvantages prior to making the decision to join this model of business. Let’s first look at the benefits of franchising the franchisor could benefit from.

1. Capital access

A major obstacles for expansion of small businesses is the amount of money required to expand. There are many different business loans available but they aren’t always a good fit out. Franchises for businesses will require some time and effort for you however, it can earn you lots of cash in the form of franchise fees.

Expanding your business through franchises allow you to expand without debt. The company grows as the franchisees’ capital increases as opposed to taking on debt using loans. The franchisor shares a small amount of risk with franchisees since the franchisee’s name appears on the deed governing the physical site of the business, which reduces the liability of the franchise overall.

2. Effective growth

The process of opening the first business unit is costly and time-consuming. The process of opening a second one can be just as challenging. If the responsibility is shared by another business owner it helps to make the process more efficient and relieves the burden off the original business owner.

In the case of growing your small-scale business, beginning with a franchise could make opening more locations a much easier procedure.

3. Little supervision of employees

One of the most stressful things for business owners is managing and hiring employees. As an owner of a franchise, the only support you need to offer to your franchisee is education and knowledge of business. The franchisor generally is not involved in the hiring, management or firing of employees.

The absence of employee supervision lets the franchisor concentrate on the expansion of the business , not the day-to-day activities. instead of worrying whether or not an employee is on time to work and if they are there, the franchisee concentrates on the larger overall picture of success for the business.

4. Brand awareness is increased

One of the many advantages of franchising is the increased brand recognition. The more franchises the company has, the greater number of people know about the brand. The more customers become familiar with and appreciate the brand greater the chance of being profitable as well as effective the brand could be. The greater brand recognition of franchises with multiple locations is extremely beneficial to the franchisees and the franchisor–a win-win.

5. Risk reduced

One of the greatest benefits for the franchisor when signing an agreement to franchise is the capacity to expand without a risk increase. Since the franchisee is responsible for the risk of debt and responsibility for opening a new location as a franchisee enjoys all the benefits of the additional location, without taking the risk.

In addition, the franchisor typically protected because the franchise is registered as a new organization, thus leaving the initial business that is owned by the franchisor to be a separate entity in relation to the franchise. A lawyer for franchises can assist in drafting the conditions for this kind of protection in the agreement for franchises.

Advantages of franchising to the franchisor

While franchisors reap lots of benefits when they start the franchise but there are also negatives to take into consideration.

1. Lack of total brand control

When a business-owner starts an independently-owned business they have the complete control of their brand and each move made by the company.

When a franchisor lets the franchisee to start an enterprise under their name the franchisor is offering (actually selling) some control they have over their small business branding. The franchise agreement must have clear guidelines and conditions to guide the choices taken by the franchisee, your franchisees will not be clones of you. They’ll think and behave differently and your brand might end up hurting because of it.

2. Potential for increased risk of legal disputes

If you sign an agreement to conduct business with other individuals that you do business with, you run the possibility of legal battles. Although a properly-drafted and legal-approved franchise agreement will reduce legal disputes between franchisees and franchisors However, legal disputes remain feasible.

Legal disputes that have to be settled in mediation or the court system could be expensive in terms of in time, and also money which can take away from the overall success for the business.

3. Initial investment

A lot of discussion is dedicated to the first investment the franchisee has to make in the franchise, it is not considered the initial cost paid from the franchisee.

If a franchisor decides to start the franchise, there is an initial cost for getting the company operating. A franchisor has to ensure it’s clearly written and examined by a lawyer who is knowledgeable in the field of franchise law. It is also possible to hire an expert franchise consultant throughout the procedure. Beginning a franchise involves the initial expenditure of time and funds from the franchisee.

4. State and federal regulations

Although it isn’t a huge issue dealing with the federal guidelines laid out in the Federal Trade Commission for franchises could be a hassle for franchisors. These rules ensure that franchises are managed fairly and efficiently, however it takes patience and energy from franchisees to comply with the requirements.

While you don’t need to submit your agreement to Federal government officials, you will have to file with certain states. And you’ll have to ensure that you’re in compliance with the state’s laws. This is a long procedure, but it can be made simpler with the help of a professional assistance.

The final word

As with many other business choices making, buying or starting an existing franchise comes with advantages and disadvantages. Not all franchises or franchises are created equal. It’s essential to thorough research prior to choosing the franchise that is right for you. You should also be aware of the pros and cons of franchising. You could encounter as a franchisee or the franchisor.