- Last Updated on 11 February 2013
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Franchising a Definition
A form of business organisation in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee. Some of the most popular franchises in the United States include Subway, McDonalds, and 7-Eleven.
Franchising is a business distribution model focused on brand development and unit expansion based upon the collaboration and combined efforts of both franchisor and franchisee. For the successful entrepreneur and prospective franchisor considering the establishment of a franchise system (i.e., "franchising your business") there are a number of franchising advantages and disadvantages that must be considered. Likewise, for the prospective franchisee looking to buy a franchise there are franchising advantages that should be considered.
Outlined in the following paragraphs, under two headings, are some of the Advantages and Disadvantages for Franchising for the Franchisor and the Franchisee. These are by no means the only reasons but represent some of the things that should be considered.
"ADVANTAGES" TO FRANCHISING YOUR BUSINESS - some of the advantages to franchising your business include:
- Capitalised Expansion -
Expansion requires the investment of capital and resources that for many successful business owners is limited and, sometimes, difficult to raise. Franchising serves as a source for the capitalised expansion of a successful business. Rather than borrowing funds from lenders, franchisees invest their own funds to expand your business.
- Continuing Revenue Streams -
Successful franchisors benefit from continuing royalties that are, typically, based upon a percentage of franchisee gross sales and paid on a monthly basis.
- Brand Development -
The Multi-unit expansion associated with franchising serves to supplement and expand the value of your brand. Franchisee contributions to local and regional advertising further serve to expand brand recognition.
- Economies of Scale -
If managed properly the multi-unit expansion associated with franchising results in increased volume purchases and leverage with business suppliers and vendors.
- Managerial Talent -
Franchisee owners - who have invested their own capital and savings - typically serve as better managers and operators than paid employees who do not possess a vested interest in the business.
"DISADVANTAGES" TO FRANCHISING YOUR BUSINESS - Some of the disadvantages to franchising your business, include:
- Legal Regulation -
Franchising is a regulated activity and requires compliance with laws. To successfully establish a franchise, franchisors are required to work with an experienced franchise solicitor to establish a solid blueprint for franchising.
- Investment -
Although franchising serves as a source for the capitalised expansion of your business (i.e., franchisees invest in your expansion), the establishment of a franchise system requires the investment of capital to cover legal fees and the cost of establishing a franchising infrastructure.
You have to make sure you have all the processes, purchasing, marketing and operations of the business set up in a manner that will benefit franchisees.
ADVANTAGES TO BUYING A FRANCHISE - Some of the advantages - provided that you choose the right franchisor - include:
- Established Brand -
Compared to establishing a new business, your franchised business - from day one - will possess an established brand recognised by consumers;
- Established Business Systems -
Your franchised business will benefit from established business systems and procedures that have been tested and proven in the marketplace.
- Training and Support -
Your franchise business will benefit from the franchisors continued training and support. This includes initial training and support that should be on-going and extend to your business operations and the continued development of the products or services that you will be offering.
DISADVANTAGES TO BUYING A FRANCHISE - Some of the disadvantages to buying a franchise, include:
- Benefits Could Prove Illusory -
If you choose the wrong franchisor, the typical "benefits" associated with buying a franchise may prove to be an illusion. Meaning, there are good franchisors and franchise systems and there are bad franchisors and franchise systems. If you choose the wrong franchisor and fail to thoroughly evaluate the franchise agreement, training, on-going support and brand recognition may be non-existent;
- Potential for Reduced Margins -
As a franchisee you will be required to pay on-going royalties. These royalties, typically, are based on your gross sales and not your profits. So, royalties will impact your profit margin. So, make sure that the franchise opportunity and the value of the franchise system outweighs your additional cost.
What The Synergy group can offer you:
- As a business that wants to set itself up as a franchise, we will bring you through the process and allow you to choose the path most suitable to you.
- As a franchisee, we will help you to evaluate the franchise opportunity.
- On an on-going basis, in both scenarios, we will help you to to not only meet your obligations, but to be successful and profitable.
Call The Synergy Group to get a review of your Franchising Plan for free and we will advise you on the best way to go forward. Then if you wish we will hold your hand to make sure it works.
T: +353 1 8215189
F: +353 1 8215191
M: +353 87 2326927