Benefits & Problems With Franchising

The decision to sell franchises of a business is one that should not be taken lightly. Although there are many benefits to franchising, there are also many problems that can develop. Before deciding to take on franchisees, it is vital to understand the benefits and potential problems associated with franchising a business.

Benefit: Expansion and Growth

• Perhaps the main benefit of franchising a business is the growth potential. The business can grow quickly with lower capital requirements. The franchisees are typically responsible for rent, construction costs and other expenses necessary to open a business. The company benefits from new stores without the associated costs.

Benefit: Royalty Revenue

• When someone opens a franchised store, they are usually required to pay the parent company a royalty. The royalty is a percentage of the store's revenue. The parent company benefits from franchising by collecting royalties from its franchisees. Of course, some of the collected royalties must be used for expenses such as marketing, product development and overhead costs.

Problem: Loss of Control

• When a business sells franchises, it loses some control over the business. Although the franchisees must follow operational guidelines, they may run the business differently or use different business practices.

Problem: Conflict with Franchisees

• The parent company has a lot of control over the overall direction of the company. They can introduce products or services, institute new procedures and implement or change marketing strategies. All of this has a great effect on the franchisees. Changes that the franchisees do not agree with can cause conflict and tension between the parent company and the franchisees.

When you sign the agreement is seem like you are getting  marriage with your life partner. So the concept it mostly like that kind of relationship. It mean the problem will be come and you have to face it with gentle and according to the agreement because it will give the impact on your investment, loan, and time. Nevertheless, if you joint the establish franchisor the chances of clash or problem become less because the franchisor management are known-well all the problem and had been face before and already re-correct.