Franchise Business

Franchise is something which is becoming the talk of the town in recent times. They are hot items these days. There are numerous franchise opportunities across the world. Like any normal thing there are things you gain and things you lose. Let’s take a look at the pros and cons of starting a franchise.

ADVANTAGES of a franchise include the following:

• Be your own boss – Franchises offer you the chance to go into business yourself irrespective of the fact that you are lacking in capital or business experience
• Profit from name recognition – Getting proper branding is one of the most difficult things to do when starting a business. Franchises eliminate this hurdle by developing an image in the marketplace which is important as it saves you both time and money
• An Established Business – Advantage of operating under the banner of an already established business. The ideas, the brand, the operating techniques and many more are already tried and tested and needs no further re-work while implementation. Everything is ready and is in place to be implemented time and again with location change
• Simpler Business Financing – 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
• Business Relationships – Advantage of the numerous business relationships already established by the franchisor. The relationships with suppliers, distributors are already in place thus making it easy to manage. The advantages of already established relationships with advertisers and marketing teams also benefit to the new business start-up
• Support and Security – Advantage of a support and security system. Franchisors offer training schemes and support for the management of accounts, sales, advertising, etc
• Less Likely To Fail – The security offered by the franchise can give the impression that the business will be less likely to fail.

Disadvantages of a Franchise

Just as with any business model, there are disadvantages to setting up a franchise. Following are some of the disadvantages of a Franchise:

• You must abide by the rules – While working for a franchise you can’t stand working for yourself rather for someone else. You are not free to do as you please and in many cases you are required to abide by the rules of Franchisor.
• It’s not free – In addition to the initial franchise fee, most franchisors are required to pay a percentage of their monthly gross sales back to the parent company. Thus leaving you with small profit margin
• No Control – One of the most significant disadvantages of a franchise is that the franchisee has no control of the business. Either they are left with no control or very limited control. Rules of the business are already laid which states how the business operates which makes it difficult for franchisee to operate outside of these borders
• Tied to Suppliers – Keeping the costs lowest is the main motive of the business. You often go to find out the cheapest supplier but being part of a franchise you’ll be required to use the franchise supply network. You are automatically tied to the suppliers as mentioned in the franchise agreement which is an obvious disadvantage for a franchisee as it leads to reduction in potential profits
• Risks from Others – Risk that others might damage the reputation of your business is also high in case of franchisee. You rely on the brand of the business to bring you customers. In case the other franchisees do damage to the reputation of the brand, this have an immediate effect on your business too which can damage sales and thus the overall profits
• Franchise Costs – One of the biggest disadvantage for most franchises is the costs. An initial cost to buy is expected and as part of the continuing franchise agreement, on-going fees for the support and training provided by the franchisor is also expected to be paid
• Cut Profit– Franchisor expect you to a cut your profit. For all the hard work done by you, you still have to pay franchisor for the privilege of using their name and support.

Following are the main firms which follows franchisee model to a great extent:

• McDonalds,
• Burger King
• Yum! Brands

The following table shows the presence of the franchisee of some of the companies across the world with McDonalds and Yum! Brands being the largest.

Also Read on GWI:

FMCG Industry in India

List of Top Food Processing Companies in India