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Advantages and Disadvantages of Franchising

Apr 3, 2019

Small business owners who have tasted success would look at franchising as the next big step for business expansion. Franchising is a business, especially in the US and it works well for any business type. There are many factors to consider before franchise expansion, and it’s critical that you know if you have made the best decision for your business.

Several small businesses can be easily replicated and the best way to expand your business can be by franchising it. Doing this the right way can also boost your business’ profitability.  Several small businesses like Dutch Bros. and Dansko have successfully franchised their businesses to global fame. Although some businesses have been able to do this, there are a few advantages and disadvantages of franchising your business.

Advantages of Franchising your Business

Franchising your business can mean big payout but also a change of mindset.

Pros of Franchising

Access to Better Talent: The one thing that all small business owners want are experts taking care of all the aspects of their business. Franchising your business lets you open stores in different locations and find talents from various demographics. This will create opportunities for you to find the best. Also, if potential talent know that you have stores in more than one location, they will also feel assured about where you are in the growth curve.

Management is Made Easy: Managing a business on any scale can be quite hectic and there will be days when you will be glad to share it with someone else. That is the exact opportunity that franchising provides you with. You, as the small business, owner do not need to get involved with the day to day activities and hassles of your franchises. The franchise owners will be taking care of all of that.

Helps Improve Scalability: The next big step for any business is the expansion phase. Franchising is the best aid you can use to speed your business expansion. It helps you to serve clientele on a larger scale from different geographies. Franchising is also the best source of a future saleable asset.

Brings External Motivation: Sometimes your business may be slow and you might feel dejected. That is when you need an external push to get up and work for your dough. Enthusiastic franchisees are the best motivators you can get. If they are working continuously towards making the business better and to improve sales, you will also get back into the grind easily.

Be open for innovative ideas from franchisees as they might come up with something really cool that can help you hit new levels of success.

Ensures Cash Flow: Continuous revenue is one thing every small business owner is constantly looking for. The franchise brings you this advantage as a percentage share of the profits are given to you as royalty on a monthly basis.

Cons of Franchising

Micromanagement doesn’t work: If you are a small business owner who tends to be a helicopter parent to your business, then think again if you are choosing to franchise. You will lose total control of your business on a day to day operations level if you are franchising as your franchisees and store managers also have a say on running the franchise. You will still govern from the top level but micromanagement is a big no-no.

Not a Best Fit for Failing Business: If you are looking to fix your failing business through franchising, then it’s a bad idea. A failing business will bring in more loss if you are trying to spend more money and expand. It is essential to fix the problems that are affecting your business, see it stabilize and then expand it to other locations. Franchises work best only if you have a successful business and your potential customers are looking forward to having your store in their locality.

Investment is Key: Most small business owners feel that they do not have to spend anything if they are franchising their business. We are sorry to burst that bubble as you will have to shell out a significant amount of money to install the franchises. This will include charges on recruitment, marketing collaterals, inventory etc. Financing your franchise is a more cost-effective way than expanding your business on your own.

The Possibility of Legal Complications: Franchising is regulated by  Federal and State Law and it is vital to comply.  Even if the franchisor-franchisee relationship is smooth, there is always a chance of mismatch in opinions or a feud. Both the parties have their own rights and when they take these disputes to court, often a lot of money is spent trying to settle.

Acceptance that Change Takes Time: If you franchise, it is best to come to terms that you are not the core decision maker of your business anymore. If you have great ideas that you would like to implement for your business, you have to sit and discuss with all your franchisees. They all have to accept the ideas before you can implement those changes.

If you are a successful business in high demand, then we say franchising is the best option for you. With all the disadvantages it comes with, franchising still tops the list when it comes to safe and cost-effective expansion.

Before you keep franchising…

There are a few things to do before opening a number of franchises,

  • Stabilize the processes in an existing franchise before rushing into the next.
  • Analyze the profits and customer reaction. You don’t want failed franchise attempt because you didn’t do your groundwork with the first.

Franchising is not everyone’s cup of tea but if you get it right, your business will see positive returns and the best part of this is that it is not just short-term.


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