Are you ready to start a business? As you brainstorm, the idea of owning a franchise crosses your mind, and it sounds attractive enough to become an entrepreneur. A franchisor is the business owner who provides the plan, brand name, and promotion to support the new franchise. However, before jumping into the idea fully, there are several things you need to understand about becoming a franchisee.
How Franchise Works
If you’re an entrepreneur considering to franchise your business, you must agree with the franchisor to get the rights to their products or services. The agreement grants you, the franchisee, an opportunity to use their exact methods in operating your business.
Franchisors offer ongoing training on business operations to support the new business to ensure it becomes successful. Franchising is a quick way to become an entrepreneur without starting a business. Since you’ve chosen to join a proven business model, you must follow the guidelines from your franchisor to the latter.
Advantages and Disadvantages of Franchising
Franchising is a good business decision for an entrepreneur, but it also has some drawbacks for both parties; the franchisor and franchisee.
Advantages to the Franchisee
The franchisee can get business assistance according to the terms of the agreement with the franchisor. Although the franchisee receives support and guidance from the franchisor, some may not provide conclusive knowledge. However, make good use of whatever support the franchisor offers is well utilized for the good of your business.
Franchisees benefit from starting a business with an already recognized brand. Starting a business from scratch is an uphill task with no guarantees of success. However, entrepreneurs join with established brands and tap into an existing customer base.
Slim Chances of failure
Generally, franchises are established businesses meaning joining them leaves little or no chances of failure. Since franchisees join successful brands and receive all support, they’re unlikely to go out of business.
Buying into Power
Established businesses have a huge network which lowers operational costs. A standalone entity pays for supplies, unlike big brands. Franchisees benefit from this network, meaning their profit margins are higher.
Disadvantages to the Franchisee
Although franchising has many advantages, there are also drawbacks to this arrangement.
A franchisor allows a franchisee to be a boss, but they aren’t in total control of the business. For instance, they can’t make decisions without consulting the franchisor who controls the following.
- Business Location
- Opening and closing hours
- Attendance on holidays
- Prices on goods or services
- Signage on documents
- Display and Decor
- Advertising and marketing
- Resale conditions
High Initial cost
A franchise investment lands a franchisee in the ready money-making market. However, the initial payment to join a franchise is expensive. Whether you join a high or low-cost franchise, you’ll still part with several thousand dollars.
Apart from the initial amount you pay to the franchisor, you’ll have to settle other costs along the way that are franchise related. These extra costs will not pop up, but they’re enumerated in the franchise agreement and may include royalty fees, advertising expenses, and training services.
Potential for conflict
Besides the support you receive from a franchisor, there’s a high potential for conflict due to some stringent regulations. A business agreement with an imbalance of power poses a risk of conflict as the partners may not get along because the franchisee has less power to enact new rules without consulting the franchisor.
A franchise business jam starts an entrepreneur and lands them in an established network to operate an already built network. The arrangement spares you the struggles of building a business from the ground up. However, an entrepreneur must operate their business depending on the rules set by the franchisor.