ADVANTAGES & DISADVANTAGES OF FRANCHISING 

Advantages of franchising

These are the perceived advantages:

• Reduces risk of business failure due to a proven the business concept in the market place. There are statistics which show that significantly less franchises fail in the first 3 years compared with new business start ups.
• Franchising enables a small businessperson to compete with a big business through economies of scale of the franchise network.
• Recognised brand - ready acceptance by the consumer of product and services.
• Support, benefit of experience and training from the franchisor.
• The above also give advantages over any independent small business competitor.
• No previous experience in a particular business is necessary for a franchisee to operate it.
• Speed of start-up
• Central marketing and research.
• Sharing of knowledge from other franchisees about what works and what doesn't.
• Admin systems provided.
• Territorial rights.

Disadvantages of franchising

These are the perceived disadvantages:

• Lack of independence - every aspect of the business format is defined and each outlet is operated strictly in agreement with this format.
• Need for discipline - need to operate a system in which there is little freedom or scope to be creative.
• Monitoring - franchisor's interest may be seen as intrusive.
• Cost of start-up - not only is there a licence fee, money is needed for working capital until such time as the business pays the way.
• Service charges - need to pay these ongoing charges even when you need little support.
• Reputational risk - each franchisee affects the reputation of the whole system depending on their performance and ability.
• Responding to the market - tends to be an inflexible method of doing business as each franchisee is bound to operate the business format in a certain way.
• Lack of enjoyment with the work unless it is something you have a passion for.
• Failure of the franchisor - the franchisor is vulnerable to financial problems if low number of franchises exist or the franchisor is under-resourced and may not be able to fund the running of the business.