What are the upsides and downsides of franchising?
Franchising is a prosperous system that has many benefits. Some of them are:
- Ready-made business plan: franchisors have rich experience and are less likely to undertake any mistakes regarding business development. As a franchisee, you acquire a well-proven business model.
- Brand: an ability to use a popular trademark familiar in certain circles will significantly speed up entry into a wide market and reduce costs to a minimum.
- Training: franchisors provide working training that helps entrepreneurs to work in the preferred line of business without having prior experience in the field.
- Location: franchisors actively take part in selecting the best territory to ensure good sales.
- Assistance with staff recruitment: many franchisors have recruitment programs that can help you fill your establishment with necessary staff.
- Protection from competition: a franchise often gives the exclusive entitlement to a franchisee to run an enterprise in a specific area. Therefore, there will be no overabundance of supply.
However, there are also downsides to having a franchise. Consider the following before taking on this venture:
- Lump-sum fee. Its sum can be rather big. The size of the lump-sum fee differs depending on the franchisor and scale of business.
- Royalty. The average royalty fee is 6.5%. If the franchise requests fixed charges that don’t depend on actual sales, this can be rather high-risk.
- Restrictions. Franchisees have to abide by some rules and standards set by a franchisor.
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