To Franchise or not to Franchise

April 29, 2013 - PRLog -- A franchise is formed on the basis of expansion, development, collaboration and combined effort between the franchisor and the franchisee. For a successful entrepreneur who is looking to spread out his business, there are several factors that work for and against his favour, as is the case with the person taking up a franchisee. Here we will be discussing some of these factors from the franchisors point of view.

Why franchising?    

Advantages:-

A business owner must understand the advantages of franchising his business before initiating a franchise business. Here are some benefits:  

Expanding capital: When you plan on expanding your business via franchise@http://www.franchiseindia.com/, you will obviously expand the investment on it as well. This capital may be difficult to rise on your own hence franchising lends the support of another party’s investment. This avoids asking for loans and funds as a franchisee invest his capital to increase your business.

Constant revenue: In most franchise set-ups, there is a franchise fee the parent company receives and further on, a percentage of sales or loyalties also flow in. This is decided against the amount of sales the franchisee provides and ensures a steady flow of income.

Brand expansion: Franchising@http://www.franchiseindia.com/ involves multiple unit expansion and helps increase the value of your brand. This also entails recognition, supplements growth and betters the position of the brand in the market hence inviting other potential franchisees.

Brand economy: Franchises help increase the business and create a better supply and demand chain. Hence the vendors and suppliers are also at an advantage and the business increases on every scale.

Administrative: The central organization may not be as large and only needs good management. Since the size of the main body reduces, cost effective labour is maintained, staff recruitment and productivity is boosted. Also, a lot of entrepreneurs do not want to be on the front of their business and franchising allows someone else to manage that for you.

Risk reduction: Since the business has been handed over to a franchisee, the financial risk reduces a great deal. This strategy then gives birth to further business expansion, networking is improved which in turn reduces competition as brand equity rises.

Disadvantages:-

Along with advantages the business owner should also know the disadvantages of franchising.

Capital allocation: Initially, the franchisor needs to work on his capital allocation intensively in order to build a proper infrastructure. Then there has to be an investment made recruit, train and support franchisees.

Legal matters: Franchising is a regulated franchise business@http://www.franchiseindia.com/ and requires a lot of franchise laws to be followed in compliance with the federation and state. Hence a lot of legal activities must take place and be sorted out by a franchise lawyer. These involve legal fees and a holistic understanding of the minute details of the business.

Risk: In the initial stage of a franchise program, there is a higher risk of the business name and reputation to be spoilt due to lack of experience of the franchisee. Another disadvantage is that the franchisor has to disclose confidential information to the franchisee and this could be used negatively.

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