The Advantages & Disadvantages of Franchising

The Advantages & Disadvantages of Franchising The Advantages & Disadvantages of Franchising Table of Contents Introduction ..................................................................................................................................... 3 Franchising Considerations ............................................................................................................. 4 Franchising Advantages .................................................................................................................. 5 Advertising Cost Savings ............................................................................................................ 5 Back up and Support.................................................................................................................... 5 Exclusivity Advantages ............................................................................................................... 5 Financing Advantages ................................................................................................................. 6 Immediate Brand Recognition ..................................................................................................... 6 Lower Failure Rate ...................................................................................................................... 6 Marketing Advantages ................................................................................................................. 7 Profit Advantages ........................................................................................................................ 7 Volume Purchasing Power .......................................................................................................... 7 Franchising Disadvantages ............................................................................................................. 8 Agreement Terms & Conditions.................................................................................................. 8 Costs ............................................................................................................................................ 9 Regulatory Requirements ............................................................................................................ 9 Ongoing Support........................................................................................................................ 10 Other Considerations ................................................................................................................. 10 Summary ....................................................................................................................................... 11 The Advantages & Disadvantages of Franchising Introduction Franchises are a good way to get into business quickly. They come with a brand name, proven methods of operation and a support structure. Franchises are everywhere. Some of the more familiar names include: Curves Dunkin’ Donuts McDonalds Mail Boxes Etc. A franchise is an entitlement granted to an individual or to a group which gives them the right to market a company's goods or services within a certain geographic territory or location. The company owner, who is the franchisor, markets the rights to the franchisee. The owner then usually receives a fee for providing ongoing support, which means they have a vested interest in the success of each of the franchises. Franchising is a well-known business and commerce practice that matches owners of recognized merchandise with other businesses or products. Franchising began back in the 1850's when Isaac Singer invented the sewing machine. In order to distribute his machines outside of his geographical area, and also provide training to customers on the use of the machines, Singer began selling licenses to entrepreneurs in different parts of the country. Today many such franchise opportunities are advertised via the Web and other media.1 This method is readily employed by small businesses and companies as a means of authenticating and supporting their business by having the brand name of a well-known company associated with it. Individuals who are interested in starting their own business will consider purchasing a franchise because they view this as a guaranteed success. Even though these may be valid beliefs, purchasers must understand that not all franchises are created equal, and everyone does not fit the mold of being a franchisee. 1 Information source: http://www.evancarmichael.com/Buying-A-Business/914/Advantages--Disadvantages-ofOwning-a-Franchise.html 3|Page The Advantages & Disadvantages of Franchising To better understand the advantages and disadvantages of the various business styles, when considering life as an industrialist, it is important to learn about each of the following:    What a business opportunity is. What a franchise is. What a start up business is. Franchising Considerations Buying a franchise can be a fast way to set up your own business without having to start from ground one. Many people who have often thought about starting their own business. They worry that their venture will fail before it even gets started. Some of their primary concerns are:  Just how they will get consumers interested in their product or service. They will make costly mistakes because of their inexperience. Their business concept isn’t working right.   A franchise is basically a replica of a business that has already been established. When you buy a franchise, you purchase the rights to use the parent company's name and to sell its product or service in exchange for an up-front franchise fee. Franchise prices will vary with each industry. The ongoing royalties are usually 3 to 6 percent of sales. The right franchise can give a measure of security that oftentimes will be missing from new ventures. Before making a commitment, you are encouraged to check out some of the other franchises to see just how successful they have been. 4|Page The Advantages & Disadvantages of Franchising Franchising Advantages Advertising Cost Savings Many times products and services are advertised at a local and national level by the main franchise companies. This practice helps to boost sales for all franchisees. Individual franchisees do not have to absorb those co