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:

Advantages Disadvantages
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

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Business Guidance

Does my business suit the franchise model?

30 January 2015

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