Knowledge Center





Sep 02
1
Franchise Business
Posted by:MyEfilings
Advantages and Disadvantages of a Franchise Business

Starting a new business from scratch isn’t easy. There are many legal aspects to be taken care of while forming a new company. A franchise business thus paves the way for achieving your goals through the help of an established business. Franchising opportunities provide you with all the support and quality required to help your business stand on its own feet.

But every business model has two sides and as we read on to discuss the advantages and disadvantages of franchising, you can make a fair decision to see how much the pros outweigh the cons.

Advantages of a Franchise Business

  • An established brand name and visibility: You gain the benefit of an established brand name. As the franchisee of a reputed brand you benefit from a systematic infrastructure already in place with all of the techniques and ideas required to effectively run a company.
     
  • Brand reputation and trademark: Franchise opportunities under an established product or brand name means you won’t need to struggle in having to build up brand repute in the market. Thus you end up saving quite a deal of money that might have been required in formation of your company and promotion of your brand. A franchise business brand will already be well recognized in the market as a time tested product and it is in this area that you as a franchise stand to gain. The franchisee also gains the benefit of a trusted and patented trademark which in itself is a mark of reliability among consumers.
     
  • Free marketing and promotion: As the franchisee of an established brand you get to benefit from existing ongoing marketing & promotional activities by the parent company. You gain effective and free promotion, advertising and marketing of the brand you are dealing with and the expertise of production by way of training and advice.
     
  • Easier finance and funding: Being associated with a big name gives you a higher eligibility to acquire funds from banks and financial institutions for the purpose of expansion and growth. Your brand name alone will attract investors if you should desire partnering your business. In certain franchise agreements, it is the franchisor that may also fund the business requirements of the franchisee.
     
  • Business Relationships: A business requires beneficial relationships with investors and related businesses. A franchisee gains the benefit of established relationships with vendors, manufacturers, producers and suppliers.
     
  • Infrastructural support and security: A franchisor will always train franchisees in all aspect of the business. Training in areas of accounts, management, promotions and marketing and sales will be imparted to the franchisee as part and parcel of the franchisee agreement.
     
  • Franchise has higher percentage of business success: Franchisors believe that a franchise business will always stand the test of time having being thrust into the market with an established presence. There are less possibilities of failure when you already have a demand for your product.

Disadvantages of a Franchise Business

 If there are advantages to franchising, there are disadvantages too. Franchise Business suits an individual depending on the nature of the brand and several factors influencing business. In all businesses there are possible risks which should be acknowledged in order to overcome obstacles that hinder potential success.

  • Business governed by franchisor: Franchising requires a franchise to administer his business in total accordance with the rules and methods laid down by the franchisor. Thus a franchisee has no control or much say in the system.
     
  • Restriction of suppliers: Even if a franchisee is connected to suppliers who may provide better deals for maximized profit, he is unable to do so and is bound to dealings with the franchisors vendors and suppliers. This results in a reduced margin of profit
     
  • Potential external Risks: As a franchisee you are also bound to a network of other franchisees on a citywide or nationwide basis. Thus your reputation is tied to the network where even one franchisee tarnishes the image of the brand, you suffer likewise.
     
  • Franchise overheads and fees: Most of the times franchise fees are quite high running into large sums of money. In case of larger brands, the costs would continue per annum for ongoing support structure by way of trainings and promotional activities. Taking into account the amount of money required for starting your own company, the onetime cost may seem high at first but in the long rain it may work out less than the continued payments made to a franchisor.
     
  • Reduced profits: in some franchisee agreements, franchisors may also demand a percentage of the profits; this means your continued efforts are enjoyed by an external source with no significant support other than an image and brand name. This means a considerable cut in your own profits which could work out to a tidy sum of money considering the nature of business.

Before starting a franchise business, both the pros and cons need to be weighed in an effective manner researching and calculating all the costs required for either a franchise or an individual startup. When you view both from a business perspective, you should be able to arrive at a decision in understanding what’s best for you. Franchise opportunities can be a good business when it is a good deal. It may also be well worth the initial cost especially when factors of a large and reputed brand are involved. In such a situation, it all depends on your projected profits depending on the image of the franchise.

How to Start Your Own Franchise Business

Starting a franchise is easy; all you need to do is explore the various options available that suit your budget and location. For legal help and support in formation of a franchise you can contact MyEfilings team which provides comprehensive services for startups where all business legalities and services pertaining to company registration are taken care of. MyEfilings is a one stop shop for business registration and formation of new franchise startups.



Comments

  • Photo not available
    I really wish there were more aricltes like this on the web.
    27 Dec,2016



Add Review