In order to establish your own business without beginning from scratch, a franchise can be the easiest way. However, you must be aware that it is not suitable for all businesses. So, in this blog, we will let you know about the franchise’s advantages and disadvantages. As understanding them will help you to decide whether franchising is a suitable option for your business? So, let’s start!
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What is a Franchise?
A franchise is a small business set up by a franchisor. The franchisor sells the right to use the company name, logos, and model of the business to separate entrepreneurs (franchisees) rather than opening other company outlets.
Therefore, for small enterprises, franchising is an approach to grow their businesses more efficiently by granting rights to the franchisees to run their own business under your trademark.
Franchising is similar to replicating a business. The original enterprise sets up the brand, gains customers’ trust, affection and learns to expand the business through trials.
The franchisees pay the franchisor to start up their own business. However, they operate under one brand and are only responsible for training their staff and the products.
In case of any alarming situation, the franchisees can take the concern to the head office. The franchisor receives support and initial training, and advice on how to tackle challenging problems.
Franchise Advantages and Disadvantages
First, we will see the advantages of a franchise.
There are several advantages to starting a franchise, especially for those who are thinking of setting up a new business. As initially, there can be too much work, costs, and risks linked with starting your own business. So, the advantages of starting a new franchise are as follows:
- By franchising, the risk of business failure is minimized. Franchising is simple but effective, so before committing yourself to it, you can look into how successful other franchises are.
- Market testing will not be needed because the products and services have already established a market share.
- The franchisor provides you with a complete package that includes help establishing a new business, training, and manual advising you on how to run the business effectively.
- You can utilise a trademark and a known brand name. So, you can be benefited from any promotion or advertisement by the franchise owner (franchisor).
- The franchisor will train you, and he will make sure that you have established enough skills to run the franchise. Therefore, no previous experience is required.
- Small businesses can compete with large businesses by starting a franchise. It can be due to the support from the other franchisees and the owner of the franchise.
- It may be easier to finance the business because banks are often more likely to give loans to buy a well-known franchise.
- You can communicate and share ideas with other franchisees in the network. Moreover, you can also receive support from them.
Now, we will explore its disadvantages.
As with the advantages, there are disadvantages of franchising that should be considered before owning a franchise.
- The original costs can be more than expected for buying the franchise; you have to pay the initial costs such as management service fees etc. You also have to agree to purchase products from the franchisor.
- There are usually a number of limitations included in the franchise agreement. These limitations are on how you can run the business. As you won’t be allowed to make any changes to fit your local market. So, this may limit your ability to make changes to the business to help it grow.
- The ongoing monitoring of the franchisor may become irritating after some time.
- The recruitment procedure must be thorough because other franchisees can harm the brand’s reputation.
To conclude the franchise advantages and disadvantages, we will say that a franchise can be the best option if you want to have a business that is already set up and has a wide range of customers. So, even after you decide to join it, we will recommend you research your desired franchise and then compare its terms with the alike franchises in the industry you want to join.
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Disclaimer: This article intends to provide general information based on franchise advantages and disadvantages.