Posted on: 30 January 2015
Some businesses don’t want to expand by recruiting more staff and opening more offices because of the added costs, risks and responsibilities involved.
For these businesses, franchising can be a better alternative because the franchises are set up in locations near to the people that are demanding their products or services. This allows the business owner to focus on supporting the franchisees from one location and ensures that all their customers’ needs are met.
However, according to Carlos Garcia, the franchisor of Total Clean, franchising is not an easy way to grow your business.
“It will demand a lot of your time and dedication in the early years,” he says. “The return on your investment is long term and it may be many years before you trade into a profit.”
The table below shows more advantages and disadvantages of franchising for the franchisor:
|Expansion can be faster because franchisees provide the labour and their sales provide the growth||Franchisees cannot be managed as closely as employees and they may have different goals to the franchisor|
|Franchisees are responsible for their company’s success so they are more motivated||Franchise recruitment can be slower and less efficient than employee recruitment|
|Franchisees may be more talented at growing the business and turning a profit than employees would be||Franchisors earn royalties from sales. Franchisees earn money from profits. Achieving growth in both isn’t always possible, potentially causing conflict|
|The franchisor puts relatively little money into new locations as this comes from the franchisee||Franchisees don’t always work together like employees might, thus losing any potential collective benefit|
|Successful locations can return high royalties||The upfront investment (time and money) required can be huge – a pilot operation may need to be tested|
|Consistent operations across the business generally means improved efficiency and higher quality levels||Selecting one wrong franchisee can ruin the reputation of the whole franchise|
|Franchisees should be fully committed due to the investment they put in||Sharing confidential information with franchisees is risky if they are not fully committed to the business|
Use the content guide below to answer your franchising questions:
- What are the advantages and disadvantages of franchising? (You are here)
- Does my business suit the business model?
- What do I need to consider when setting up the franchise?
- What are my options for funding a franchise?
- How do I recruit the right franchisees?
- What are the advantages and disadvantages for the franchisee?
- Will I suit the franchise model?
- Where do I find franchise opportunities?
- How do I choose the right franchise business?
- What questions should I ask before buying?
- How can I finance becoming a franchisee?
- How do I make my franchise successful?
The information and tools contained in this guide are of a general informational nature and should not be relied upon as being suitable for any specific set of circumstances. We have used reasonable endeavours to ensure the accuracy and completeness of the contents but the information and tools do not constitute professional advice and must not be relied upon as such. To the extent permitted by law, we do not accept responsibility for any loss which may arise from reliance on the information or tools in our Knowledge Centre.