There comes a time when aspiring entrepreneurs will ask themselves whether they should get into franchising. It’s a great way of propelling an already-successful business even further. But, can it be implemented for every type of business? In this article, we will explore some of the most prominent pros and cons that you will need to consider before franchising your business. So, without further ado, let’s get right into it.
The Pros
1) It’s Easier to Manage
Franchises give immense autonomy to their managers. By franchising your business, you don’t have to put too much worry into how the franchisee’s business is being managed. It’s their branch to manage (as long as they stick by the dominant formula). Not to mention, people who get into franchising are, usually, more reliable and have a certain degree of established expertise which will allow you to worry about fewer issues down the road.
2) You Can Get Higher-Quality Employees Easier
Finding talented and, more importantly, reliable people proves to be a problem for every aspiring entrepreneur. One way to solve this issue is by franchising. Franchising your business allows you to open up to the global talent pool. By opening the doors to possible franchisees, you can securely pick out the best personnel that you see fit to manage your franchise. People, generally, are more stimulated and work harder when they have freedom and the ability to run a business in comparison to being a static employee that’s told what to do. So, by employing a talented individual as a franchisee, they are going to be highly stimulated on making their business succeed while also not getting poached by a competitor.
3) It Increases Your Purchasing Power
In terms of economics, a business that is larger and more secure will also hold higher purchasing power. Since you are expected to buy larger quantities of products, you will have some wiggle space and the ability to get a better deal when doing business. Multiple potential business partners will be actively seeking out cooperation with you precisely because they view you as a potentially reliable business partner.
4) It Provides You With an Easy Way to Grow Your Business
Smaller companies struggle with finding the extra capital that would be used for expanding their business. This problem is (mostly) solved by franchising. This is achieved by franchisees covering most of the expenses themselves, thus making your business expansion a lot easier to handle (financially) than if you would just open up a new branch yourself. They are also the one that takes the potential burden of debt upon themselves if the business would fail. So, you effectively eliminate a high degree of risk for yourself, while reaping the benefits through royalties.
5) It Makes Your Brand More Known
Franchising brings you the benefit of having a manager dictate their business independently while being under your brand. Their success is your success. This effectively leads to every expansion into a new market or any positive news or event that relates to your franchise, to your brand getting more recognized in the world. Beware, this can act as a double-edged sword. While positive things can spread, so can negative rumours or events. With this in mind, you should avoid franchising with people who you think will cause a scandal down the line.
Nonetheless, there are many reasons why you should look for a franchise for sale. But, it’s time to go over some of the negative things about franchising.
The Cons
1) It Cannot Be Used as a Way of Reviving a Failed Business
As you might have guessed, we have given the impression already that franchising is most effective as a tool to propel your business forward. With this said, it is an extremely inefficient and ill-advised tool for getting yourself out of a bad situation. You might think the cash infusion would help you out, but in reality, you are hardly going to find people interested in franchising when you are performing poorly. Remember, the possible franchisees can see your financial records and your current economic standing. This can also be used to leverage a more favourable position, in which case you will be tied up with a franchise where you have to commit a lot of your time and effort without much financial return.
2) It’s a Larger Time Sink
While franchising allows you to put your faith in a capable manager, it will require an immense amount of time to be spent getting their franchise off the ground. You are expected to give them countless details about your business, from product specifics, business strategies, training, etc, etc. This can be an incredibly taxing thing if your attention is needed elsewhere. It will require you to spend a lot of sleepless nights or completely neglect aspects of your business, both of which, are less-than-ideal scenarios for you.
3) The Legal Aspect
When You want to expand your business via franchising, you will need to do a lot of paperwork (and make sure it’s annually updated). The amount of work will vary greatly depending on the country (and even state) that you are from. For example, in the US, your head legal concern will be the FDD. The FDD is made up of 23 mandated sections that refer to every mandate as an “item”. These items are used to give information to possible franchisees about you, your business, and what would be your legal obligations if you would start working together. So, it would define everything from royalties and starting expenses to territories and expansion boundaries.
Franchising, while it is a prominent and proven way of expanding a business, also has its issues that can easily backfire if ignored. Just because there are fewer risks involved, does not make it a safe option to pursue. When it’s all said and done, it falls upon you to research and judge the situation carefully and make a decision whether it would be good to franchise your business or not.
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