When the life of an entrepreneur is considered, it is important to understand the definitions of a franchise, business opportunity, and a start-up business. There are, of course, advantages and disadvantages to each style of business. In this article, we will discuss the advantages and disadvantages of owning a franchise.
A franchise is a right granted to an individual or group to market a company’s goods or services within a certain territory or location. The franchisor (the company owner) sells the rights to the franchisee and then typically receives a fee for ongoing support, therefore having a vested interest in the success of each franchise.
Franchising began back in the 1850’s when Isaac Singer invented the sewing machine. In order to distribute his machines outside of his geographical area, and also provide training to customers on the use of the machines, Singer began selling licenses to entrepreneurs in different parts of the country. Today many such franchise opportunities are advertised via the Web and other media.
- There is a higher likelihood of success since a proven business formula is in place
- The products, services, and business operations have already been established
- Bankers usually look at successful franchise chains as having a lower risk of repayment default and are more likely to loan money based on that premise
- The corporate image and brand awareness is already recognized. Consumers are more comfortable purchasing items they are familiar with and working with companies they know and trust
- Franchise companies usually provide extensive training and support to their franchisees to help them succeed
- Many times products and services are advertised at a local and national level by the main franchise companies
- This practice helps boost sales for all franchisees, but individual franchisees don’t absorb the cost
- Franchises can be costly to implement
- Many franchises charge ongoing royalties cutting into the profits of franchisees
- Franchisors usually require franchisees to follow their operations manual to a tee to ensure consistency, limiting any creativity on the part of the franchisee
- Franchisees must be excellent at following directions to maintain the image and level of service already established
- If the franchisee is not capable of running a quality business or does not have proper funding, this could curtail success
- Sometimes franchisors may be lax on their commitment to support the franchisee
Also, they may make poor decisions that would have an ill effect on the franchisee. Therefore, it is important to research any franchise concept thoroughly before signing any agreements.