Franchising is one of the most dominant and successful business models in our nation. Advantages and disadvantages of business franchising. Thus, inventory and supplies cost less for a franchise than for an independent company. The franchise model provides leveraged growth and entrepreneurial flexibility when the firms cash flow. Weighing the advantages and disadvantages of franchising, as outlined above, will hopefully help you determine if franchising is the right path for you.
But franchising is no guarantee of success and the same principles of good management such as informed decisionmaking, hard work, time management, having enough money and serving your customers well still apply. The first type is the conventional franchising model. The risk of business failure is reduced by franchising. Advantages of franchising your business benefits of. Absence of the cost of the verticallyintegrated network management reduction of personnel costs a. Franchising is seen by many as a simple way to go into business for the first time. Advantages of franchising mode are following kotler, 2002, p. One franchisee expressed it this way, what i have learned from the franchisor was worth ten times what i paid for the franchise. Two, explain the pros and cons of owning a franchise. Advantages and disadvantages of franchising advantages to franchisors.
Expansion can be faster because franchisees provide the labour and their sales provide the growth. Franchise fees and royalties can be a major expense. Franchising according to john means a big brand name behind, with an ongoing support for different aspects of business. The answer will depend and vary depending on who you are and what your goals are. The advantages of franchising described in the last chapter come at a cost. Franchising provides benefits for both seller and buyer. Discuss the advantages of franchising according to john and to your own experience and knowledge. Four, identify resources to assist you in franchising a business. Listed below are some advantages and disadvantages of buying a franchise. The appeal of a business format franchise is understandable. One, define franchising and the types of franchises. If you are looking to sell franchises, a franchisee is going to go out and find a site, theyre going to negotiate the lease, theyre going to hire the people, theyre going to train the people, theyre going to hire the contractor. Like the advantages, there are many disadvantages too as can be in any form of business, however in this context the disadvantages.
To establish unified thinking about franchising and the language that must reflect that understanding. Download 10page research paper on franchising of hotels. Franchising is advantageous to both franchisee and franchisor in the following ways. Franchising allows aspiring entrepreneurs to start a new business without incurring the same level of risk as a brandnew venture. Pdf determining pros and cons of franchising by using swot. You dont necessarily need business experience to run a franchise. Before getting involved in franchising in ny or nj, it is important to understand some of the advantages and disadvantages to being a franchisor and franchisee. Franchising meaning, examples, advantages, disadvantages. Your franchise will benefit from the collective buying power of the parent company, which passes on the savings to franchisees. These are brand recognition, low risk to failure, easy set up, ready customer portfolio and easy to find financial support.
Three, discuss the components of a franchise disclosure document. Advantages and disadvantages of franchising free essay example. Advantages and disadvantages to franchising your business. Essay on the pros and cons of franchising 2194 words. When starting a business or venturing into entrepreneurship, it is imperative for one to consider all options. Franchises offer the independence of small business ownership supported by the benefits of a big business. Advantages and disadvantages of franchising your business. Some of the advantages to franchising your business include. Preservation by franchisees of their eco nomic and legal independence. The advantages and disadvantages of franchising, ultimately, must be evaluated based on your specific business, your goals, and your mindset. Each growth strategy has its own advantages and disadvantages, and each has its own legal ramifications. Owning a franchise is similar to buying a business with builtin loyal customers.
The franchisor will also lose handson involvement with the individual operations and the franchisor will also be limited by contract to the actual changes which can and may incur in. Advantages and disadvantages of buying a franchise business. This is the cornerstone concept of franchising, and it also results in one of the most important benefits of a franchise network brand expansion. Franchising your business allows your brand to grow and duplicate at several levels. Here the main concern is the franchisor and there for the advantages and. Firstly, franchising is a great way to expand a business without incurring additional costs on expansion. Franchising meaning, advantages, disadvantages it brings together the titleholder of recognized merchandise with another business. This article will explore different growth strategies with a particular emphasis on franchising, which is the most highly regulated of the growth strategies analyzed.
This further also helps in building a brand name, increasing goodwill and reaching more customers. There are many benefits of franchising but there are also a number of drawbacks to consider. This is because all expenses of selling are borne by the franchise. The advantages and disadvantages vary depending on. Ive decided to list the disadvantages first, to in some way attempt to counterbalance my natural tendency to be an advocate for franchising, given my 25plus years. Determining pros and cons of franchising by using swot. If franchising is right for you, the advantages of franchising far outweigh the disadvantages. Franchising as a way of doing business is suitable for two types of companies. A franchisor expands his business through franchising as it offers certain advantages. The franchising literature indicates the numerous advantages, disadvantages and.
Franchisors usually provide the training you need to operate their business model. The table below shows the advantages and disadvantages of franchising for the franchisee. Ive decided to list the disadvantages first, to in some way attempt to counterbalance my natural tendency to. To recognize the implication of these changes for companies that. Apr 15, 2019 when an individual buys a franchise, he or she purchases the years of experience and the proven operating system of the franchisor. Jan 30, 2015 the table below shows the advantages and disadvantages of franchising for the franchisee. Essay on the pros and cons of franchising 2194 words bartleby. As already discussed, the company uses three types of franchising models for its restaurants.
Capitalized expansion expansion requires the investment of capital and resources that for many successful business owners is limited and sometimes difficult to raise. In any new business, much time and money are spent in trial and error, but a proven franchise may eliminate many of those start. The purpose of franchising is, at its root, a method of marketing or advertising a companys goods and services. Expansion can be faster because franchisees provide the labour and their sales provide the growth, franchisees. Buying a franchise can be a quick way to set up your own business without starting from scratch. Advantages of buying a franchise franchises offer the independence of small business ownership supported by the benefits of a big business network. The advantage of the system is that there is a blue print for success, a track record and proven formula. Advantages and disadvantages of franchising as a form of business. Franchising has exhibited dramatic growth since it offers some significant advantages when compared to other distribution methods. Pdf determining pros and cons of franchising by using. That you need no much capital, with low investment people can buy the franchise and setup business easily. Generally in this kind of agreement, the company either owns the land and the building or obtains a long term lease for the restaurant location. It is a marketing system for creating an image in the minds of current and future customers about how the companys products.
The advantages of franchising your business are listed in detail below but they all revolve around the fact that franchising will permit you to expand your. International franchise benefits include worldwide expansion of the business without giving up control or requiring extensive capital, since the franchisee provides this. Pdf this report is an attempt to compare the advantages and disadvantages of franchising which is one of the most known business model. Because america is the worlds most mature and sophisticated franchise market, use of the franchise model internationally is a competitive advantage for u. Franchising is an excellent way of expanding a business that is already successful. Under franchising, the service provider develops the business format and licenses it to others.
Simply put, franchising involves the owner of the business which is being franchised the franchisor granting to the person who wants to offer the products and services of the franchisor the franchisee rights to use its trademarks, business names, associated intellectual property, knowhow, business systems, training systems and operating manuals in exchange. We are reading the advantages of franchising and the first thing about buying a franchising. Understanding the advantages and disadvantages of franchising will enable you to decide if franchising is a suitable option for your business expansion. Advantages and disadvantages of franchising for franchisors. This report is an attempt to compare the advantages and disadvantages of franchising which is one of the most known business model. The most common barrier to expansion faced by todays small businesses is lack of access to capital. The first and most significant disadvantage of a franchise is the fact that the franchisee has no control of the business or how it is run or very limited control. The ifa educational foundation an introduction to franchising 5 an introduction to franchising a franchise is the agreement or license between two legally independent parties which gives. The use of the brand, which has won the loyalty of customers and a. This thesis is to examine franchising as a possible growth strategy for a clothing. Understanding franchising franchise business services. This is most often seen in the soft drink or automotive industry. Advantages and disadvantages of buying a franchise.
Franchisees cannot be managed as closely as employees and they may have different goals to the franchisor. Advantages of franchising a business ifranchise group. Franchisees dont have to build the brand or set up the systems and processes to run the business efficiently. Rapid expansion of sales markets, the increase in sales volume and the territorial expansion of the business absence of the cost of the verticallyintegrated network management reduction of personnel costs.
The the franchisee is the value lever that enhances the v alue creation in the franchising business model. Now the big advantages of franchising are time, people and money. A successful franchise means that the business model is proven. Y in order to determine whether there are more advantages or disadvantages. Rapid expansion of sales markets, the increase in sales volume and the territorial expansion of the business. The franchise agreement usually includes restrictions on how you can run the. The objective of this study is to examine the advantages and disadvantages of franchising hotel operations. To identify how a company can use franchising as a strategy to accomplish its mission. Advantages and disadvantages of franchising nibusinessinfo. By comparing the costs of franchising described in this chapter with the benefits of franchising described in the last chapter, you can better decide whether franchising is worthwhile for your business. The primary advantages for most companies entering the realm of franchising are capital, speed of growth, motivated management, and risk. If you do choose to embark on the franchising route, the following are important things to keep in mind. Understanding the advantages and disadvantages of franchising will enable you to decide if franchising is a. Franchising arrangements are broadly classified into three types.
However you should be aware that franchising is not suitable for every business. What are the advantages and disadvantages of franchising. In turn, onnet benefits and improving the reputation of the system as a whole have a signifi cant impact on increasing the level of trust to the subjects of franchising relationships and reputation. This strategy can be opted by small businesses by having a brand name of a wellknown company associated with it. Franchising serves as a source for the capitalized expansion of a successful business. Table 1 advantages and disadvantages of franchising advantages of franchising for the franchisor for the franchisee 1. In product trade name franchising, a franchisor owns the right to the name or trademark and sells that right to a franchisee. Franchises offer the independence of small business ownership supported by the benefits of a big business network. For franchisors, the primary benefit is the ability to use other peoples money to expand the brand more rapidly than they could either on. Many wellknown franchises have national brandname recognition. How the business operates is set out by the brand of the franchise and it is very rare that a.
What are the advantages and disadvantages for the franchisee. The franchising business model should provide sustain ed advantage for the franchisor. The broad scope of the franchise laws may apply to a. If you want to franchise your business so if you are a successful business owner and you want to expand then naturally franchising is an option that you will want to consider. Franchises have benefits, proven ideas and brand names but the franchisor may restrict how you run the business. Opening a franchising in these types of areas, where have not any branch of such type services. People are naturally attracted to familiarity, and a process that is consistent regardless of the location in which it is being executed will lead to successful results.
Its faster because other people are out there helping you in the process. The disadvantages to franchising are that the franchisor will lose control over certain aspects of the job. Business growth advantages and disadvantages to franchising your business each franchise agreement requires franchisees to use the name, branding, recipes and practices of the franchisor. Franchising is a business strategy for getting and keeping customers. Franchise system is one way to become a part owner of a small or large business for beginning entrepreneurs. Developing a franchise network can be expensive, in terms of management time and initial capital outlay. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer. The rules of the business are already established and part of the franchise agreement. In the third part, the disadvantages of franchising are explained that are strict rules. Under this, dealers were given the right to distribute goods for a manufacturer. Advantages and disadvantages of franchising commerce essay.