11 Key Pros and Cons of Franchises

11 Key Pros and Cons of Franchises

by / Comments Off / 12 View / Apr 17, 2015

Every business model has its pros and cons. That is the only reason why a standard practice or any practice doesn’t suit any and sundry. The concept of franchise or franchising is great but it isn’t for every business. There aren’t just the standard franchise pros and cons, the positives and negatives also depend on whether you are the franchiser or the franchisee. It may so happen that a franchise business works well for the franchiser and the franchisee suffers or struggles to stay afloat. The exact opposite is also common where a franchisee manages to make money but the franchiser doesn’t and eventually the practice would be shunned. Before you can decide whether or not to capitalize on a franchising opportunity, you should study the following franchise pros and cons.

What Are the Pros of Franchises?

1. Effective Way to Expand a Company
Companies looking at expansion often take the route of franchising. It makes sense because expansion is one of the primary benefits of the concept. The first major advantage of franchising is that it doesn’t require the company to pump in a lot of money. With clever planning, a company can expand with no investment. To the contrary, the company would be able to raise funds by granting franchise rights. Often, franchising is used to raise money. Successful companies looking at expansion can also raise money which they can use according to their priorities. This is the most useful or beneficial advantage.

2. Get More Access to Talent
Depending on the industry and the scope of operations of a company, the right talent may not be available where the company is based and has its offices. Having franchisees in other cities, states and even countries can get some very talented people in various capacities or niches.

3. Avoid the Necessary of Outside Financial Institutions
Franchising doesn’t come with any inherent risk for the franchiser. Unless the franchiser is investing money or some very important resources, there is hardly anything at stake. To the contrary, the company or franchiser gets to raise money without interests and without having to attend to the whims and fancies of banks, investors, shareholders or financial institutions.

4. Easy Option for Starting a New Business
A company or individual looking at venturing into a new business, looking for expansion or some more revenue will find the franchising concept an easy option. Franchisees get a turnkey system. In most cases, the franchiser has a successful business, is already a brand and there is very little work at the ground level that has to be done by the franchisee. In a way, a franchisee would be cashing in on the past hard work and accomplishments of the franchiser.

5. Have a Support Structure
A franchisee gets immense support from the franchiser. Every area of the business and every department would get some hand holding and often active supervision from the franchiser. At no point in time will the franchisee be alone, facing the downward slides in business or the wrath of dwindling economy. Franchiser and franchisee make a team and that always works well for small to medium businesses.

6. Take Less Risks
There is very little risk in a franchise business. Franchisees are typically small to medium companies who don’t have much capital but can invest a little to be in a promising venture. Franchisers are established businesses and have a track record of success. There is little room for trial and error with a franchise business as long as the market research, statistical analysis and viability are studied and appropriated.

What Are the Cons of Franchises?

1. Limited Control Over Operations and Business
A franchiser cannot ensure that every aspect of their business is well looked after, just as the owner or the core team would. The franchisees would have direct control over their immediate market and the operations they would carry out. Conflict with managers or staff working at franchisees is also common.

2. Leads to Weakened State of Core
The concept of franchising is similar to outsourcing in a way. While the franchiser gets access to talent and raises capital, the core team tends to be small and gets weaker over time. Since the focus is on growth of the franchisees and through that the growth of the business, the core team may become inconsequential to an extent and wouldn’t get the attention that it deserves. Over time, the company can become completely dependent on franchisees for its existence.

3. Slow with Innovation
Franchising doesn’t go hand in hand with innovation, in most cases. For innovation to be shaped up and for the right implementation of the same, the franchiser and the franchisee have to be equally invested and should have the same level of expertise, which is rarely the case. It may so happen that an innovation initiated by the franchiser gets rejected by the franchisees.

4. Lacks Freedom
Franchisees would not have complete freedom to go about their business. They would have the franchisers dictating at all times.

5. Costs and Resources
In franchises, royalty payments may not be to generous and resources can be limited in some cases. The help from the franchiser may not be adequate at all times. From another perspective, the franchiser may be more depending on the franchise than vice versa. Lastly, high sales do not always mean high profits for the franchisee, even if the franchiser makes a lot of money.