Introduction
The question about whether to take up a franchising business has been in the limelight for most of us during these past few months. There are countless people who would consider franchising while another is just considering it out of sheer interest. There are also many who have already done it. However, there are a few that are considering franchising due to different reasons. This paper will be an overview of franchising business and its good, bad as well as negative effects on both sides of this debate.
Owning a franchise
Just like any other businesses, franchised companies have their own brand name to differentiate themselves from others within the same industry or niche. The company’s logo, colors, brand name and corporate identity will all serve to identify the business within a given region from others. As such, a franchisor can not go anywhere without having his/her signature business as their front that can later be used by any new business entering the market. Another advantage of franchising is that there is no need for prior experience to start and run the business; only need to work with the franchisor to get started. This helps to reduce overheads in case you want to start a small restaurant and then expand into the food industry (Garcia & Vazquez 1994). It also allows those who already have their franchisor business as a background to expand to other areas that do not have the need for extensive experience. In addition, franchising provides more independence than any other kind of business ownership because the franchisor controls the entire operation of the business and makes all decisions and makes all the decisions at the discretion of the franchiser.
On the flip side, franchising has also its disadvantages in itself. One of them is that unlike individual franchises, franchises require huge initial investment. For example, if one wants to start a small-scale food chain, he/she needs to make a big initial investment and once franchisor agrees to invest in the concept, they can turn any number of times until the concept becomes successful. On the other hand, smaller chains can easily become large-scale enterprises; some of them even start as family firms. They also pay franchise fees which are higher than any other type of business. Finally, franchisors can withdraw capital to grow the business once it is doing well. All of these factors make up almost half of franchise cost; the rest is covered by taxes as well as sales tax payable (Garcia & Vazquez 1994).
In comparison to a traditional owned business, franchising has several benefits. First, if you choose to franchise your retail store, you can use the cash flow generated by each transaction from the same store. In fact, as soon as you take delivery of a product from another location, you can use it to promote your products elsewhere too. Even though, you cannot keep the money to yourself, you have made a substantial profit. Second, many franchisees prefer to sell their products outside their country of residence than inside a home. Thus, you can create awareness of your global reach through marketing your merchandise around the globe and still remain anonymous since you are part of the company that manages that particular branch. Third, franchising has access to world-class equipment. Unlike ordinary stores whose stock is limited, franchisers are usually available with any type of machinery needed to run their business. These machines are used locally thereby reducing transportation costs and making deliveries easier. Fourth, a customer does not have to visit the stores to make orders. Just make a phone call to the franchiser. Lastly, franchisers have better control of their finances in case they have financial constraints. Instead, with this form of ownership, you can have unlimited funds to run the business if you wish.
On the contrary, owning a franchised business comes with a lot of risks as well as the potential conflicts that may arise as a result of the franchisees’ choice to run the business in a particular way as opposed to how he/she did it before. Franchising requires significant time, effort and skill to succeed. You cannot run a franchise on one’s own. In addition, it takes a significant amount of financing for the entrepreneur to begin and run the business because of the extra expenses that must be incurred if one wants to open the premises for business or start a new shop. Lastly, if one wants to exit, it is very difficult to do so with franchisor. A person who decides to leave could be faced with severe penalties. On the opposite, anyone who is a franchisee must deal with any disputes arising out of the franchisee’s exit. Moreover, some companies are forced to terminate services of their franchisees due to a certain breach of contract. Some of the franchisers opt not to allow franchisees to participate in training programs (Garcia & Vazquez 1994). Due to this, the franchisor might never deliver services as expected. Therefore, there are high chances that the franchiser will end up losing money as well as the goodwill from the customers.
Conclusion
One of the biggest advantages and merits of franchising in owning a local business is that it offers you much more freedom than your local business owner. Through franchising you can make decisions on what to produce and which locations to place the production. You cannot really set your own prices. On the flip side, the disadvantages of franchising include loss of control, lack of creativity, less stability, poor communication and insufficient capacity. Despite the disadvantages, franchisor owns the whole business so as to continue its operations. This makes sure that customers always receive their products and services and even if they change or move away, they will still carry the image of the franchiser.
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