Entering into a franchise agreement is one of the most common ways of becoming a business owner. Franchising entails establishing or operating a business under an authorization to sell or distribute a company’s goods or services in a particular area (Seid & Thomas, 2007). It involves writing a contract between a franchisor and franchisee, which defines the business relationship they will have for an agreed period. The agreement signed by both parties stipulates the limitations, rights, duties, and responsibilities of each party. This helps to ensure that the business agreement comes to fruition by ensuring the satisfaction of everyone involved (Seid & Thomas, 2007). Consumers benefit the most from franchising because they get a chance to have increased access to quality goods and services from reliable entities.
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Advantages and disadvantages of entering into a franchise agreement
Buying a franchise has both advantages and disadvantages. Studies have established that franchising is a better option for becoming a business owner compared to starting one. First, a franchise owner enjoys the independence of operating under a big and reliable business network (Sherman, 2011). The biggest motivation for people who buy a franchise is the ability to be their own boss, the pride of owning a business, and the convenience that comes with dealing with a brand that people are already familiar with. Second, buying a franchise allows a business owner to have a quick start characterized by higher sales, huge profits, and better equity because a lack of experience does not affect performance very much (Sherman, 2011).
People who buy a franchise are often trained by their mother’s business on how to operate a business using their model, thus increasing the chances of having a strong start. Other benefits provided by the franchisor to a franchisee include advertising, management support, selecting a site, financing, as well as designing and constructing the business (Seid & Thomas, 2007).
Third, buying a franchise is advantageous because it has low risks for business owners. Studies have established that franchises have a very high success rate compared to businesses that start from scratch (Sherman, 2011). The success rate is a result of the help that a franchiser extends to a franchisee. The success strategies and models applied by a mother business are often duplicated with a franchise, thus increasing the chances of succeeding. Experts argue that buying a franchise involves acquiring a successful business that already has a good image, reputation, and a sizeable market share (Seid & Thomas, 2007).
Despite all the positives, experts also argue that franchising has a number of disadvantages, especially for the buyer. The disadvantages of franchising revolve around the concept of independence. First, franchising denies a business owner the ability to have full control over their entity and its crucial processes, such as decision-making (Seid & Thomas, 2007). Franchises have to follow the business model used by their franchisor, thus limiting the ability of a business owner to be creative. A franchise cannot introduce a new product or service that is not provided by their franchisor (Sherman, 2011). Similarly, they have to work with the same suppliers for the sake of quality management and brand development. Second, if a franchise can suffer the effects of failure by another franchise connected to its franchisor, finally, a franchise can risk losing their business at the end of an agreement because a franchisor does not need to renew if they do not want (Sherman, 2011).
Franchising can be a good option to own a business, especially for first-timers. Franchise owners should know that the success of a franchisor does not automatically make their business success because they will have to manage their entities well. Before signing a franchise agreement, prospective business owners should ensure that they are comfortable with the performance, reputation, and overall operational setup of the franchisor.
Seid, M, & Thomas, D 2007, Franchising for Dummies, John Wiley & Sons, New York. Web.
Sherman, A 2011, Franchising & Licensing: Two Powerful Ways to Grow Your Business in Any Economy, Cambridge University Press, New Jersey. Web.