Careful thought must be undertaken with any major financial decision you make. If youve considered starting your own business, youve probably heard about franchising. There are many advantages to franchising, rather than starting an independent business. Of course, there are disadvantages as well, and some types of people may prefer to start their own business.
One big advantage of choosing a franchise instead of starting an independent business is that the company/franchisor will take care of a lot of the financial and operational details for you. The franchisee must pay a fee, but they do not have to worry about losing money the way an independent small business owner would have to. In most cases, the company would also provide or train employees for the franchise, ensuring their quality and saving training costs for the franchise owner.
Keep in mind that although the company would take care of a lot of the financial hassle, the franchisee will still need to pay a fee and have capital. The franchisee must have a stake in whether or not the franchise does well. Otherwise, the company could not ensure that the franchise would be run with sufficient dedication.
Another thing to consider as a benefit of franchises is that if a company is expanding, it indicates that they are probably doing well. This profitability, combined with ensured name recognition when the franchise is opened, should mean good business right away and will motivate the franchisee to be even more successful.
Franchises can also be more profitable than independent businesses because of the efficiency that the main company can achieve. The franchisor is able to get discounts on real estate and raw materials, which makes the company stronger. This strength and profitability gets passed along to the franchise owner, and increases confidence in the company.
However, there are some disadvantages to franchising, especially if you are considering using a franchise with your already successful business. If you already have name recognition and are doing well as an independent business, you lose most of the advantages of the franchise, and you may find yourself having to answer to a big company who will set policies you dont like. The franchisee/owner does not get much say in decisions that are made once they have decided to make their business into a franchise.
Furthermore, franchises involve more legalities than independently own businesses and thus make take longer to set up. In addition, if the company is not very efficient and well-operated, they may not be able to deal with the rapid growth of their franchises, which could cause problems for franchisees.