Franchising Pros and Cons
To many entrepreneurs who have been successful in building business empires, franchising is an option that may be running through their minds. Franchising is one of the ways of expanding a business and you too may be moved to try it out. However, it is very important to note that just like any other models of business, franchising also has its benefits and demerits. Getting to know them will help you as an entrepreneur to make an informed choice on whether to franchise or not.
One of the pros of franchising is that it can be helpful in obtaining new talent for good business. Many people who are highly qualified and hard workers often tend to invest in running businesses instead of being employed by others in exchange for salaries. Thus, there is a higher chance that by franchising, you are able to get the best talent that can work towards building the business compared to hiring someone to work for you.
Franchising is also a way of obtaining expansion capital for the business without a lot of stress. Since franchisees pay to acquire outlets within the chain, you are able to significantly increase the number of locations without necessarily having to tap a great chunk of your own capital or even moving up and down in search of loans from banks.
When making comparison between starting your own business and franchising, you will realize that franchising is less risky and even costly. Since franchising involves the use of a brand that is already established in the market, there are several costs that are already avoided. Besides, it should also be noted that even though franchisors do not provide financing, many have better working relationships with lenders that can help with issues about financing.
Franchising limits creativity and flexibility on the part of the entrepreneur who is franchising. The reason for this is because the contracts always come with rules that set very explicit standards. In most occasions, the investor who has franchised is not allowed to make any change to the brand but stick to what its owner stipulates. Even if you have a new idea, the franchisor has to agree to it before it is rolled out. This can curtail the efforts of the franchisee to develop the business in the way that he or she likes.
Another con of franchising is that the success of the franchisee is based on the franchisor. The reputation that the franchisee will have in the market shall be a representation of the franchisor’s. This means that any problem that is encountered by the franchisor in the course of doing business will directly impact the franchisee. In fact, investors who fail to do their research well before franchising always find themselves stuck for years after signing the contract.
Just like any other ventures that people may think of investing in, there is no guarantee that franchising is risk-free and more profitable. Choosing to franchise or not is a decision that requires proper research and consultations.
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