Advantages:“Owning a franchise allows you to go into business for yourself, but not by yourself.” A franchise provides franchisees (an individual owner/operator) with a certain level of independence where they can operate their business. A franchise provides an established product or service which may already enjoy widespread brand-name recognition. This gives the franchisee the benefits of a pre-sold customer base which would ordinarily takes years to establish. A franchise increases your chances of business success because you are associating with proven products and methods. Franchises may offer consumers the attraction of a certain level of quality and consistency because it is mandated by the franchise agreement. Franchises offer important pre-opening support: site selection, design, construction, financing, training, and a grand-opening program Franchises offer ongoing support: training, national and regional advertising, operating procedures, operational assistance, ongoing supervision and management support, increased spending power, and access to bulk purchasing. Disadvantages:The franchisee is not completely independent. Franchisees are required to operate their businesses according to the procedures and restrictions set forth by the franchisor in the franchisee agreement. These restrictions usually include the products or services which can be offered, pricing and geographic territory. For some people, this is the most serious disadvantage to becoming a franchisee. In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees. Franchisees must be careful to balance restrictions and support provided by the franchisor with their own ability to manage their business. A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem. The term (duration) of a franchise agreement is usually limited and the franchisee may have little or no say about the terms of a termination.
TermUninterested Franchisors: Franchisors that have little interest in the actual success of the franchise, and more interest in collecting fees from franchisees. Example: In the early 2000s, the popularity of Krispy Kreme donuts increased rapidly, leading to a huge increase in the number of franchises. However, poor policies on the part of the main company led to struggling franchisees: huge growth led to market saturation and a weakening of the brand as franchisees were found everywhere from malls to gas stations (whereas the original appeal was as a delicacy); Krispy Kreme forced franchisees to buy equipment at very high mark-ups, weakening the franchisee profits. Thus, the company's focus was on profits through fees and sales to franchisees rather than royalty payments. Disadvantages to the FranchisorOf course, no business arrangement is without potential risks and disadvantages. While there are many advantages for the franchisor in entering a franchising agreement, some of the potential risks are:
Disadvantages to the Franchisee
Franchise costs vary to some extent because of costs associated with different kinds of businesses and with different locations. For example, a person who wishes to open a franchised employment service operation, such as Talent Force, based in Atlanta, Georgia, can get away with as little as a $7,500 fee, plus one year's starting capital investment of $50,000 to $110,000. On the other hand, start-up costs for a company like J.O.B.S., based in Clearwater, Florida, can be as little as $45,000, including a $30,000 franchise fee. Source: Boundless, http://oer2go.org/mods/en-boundless/www.boundless.com/business/textbooks/boundless-business-textbook/types-of-business-ownership-6/franchising-52/disadvantages-of-franchises-259-1362/index.html Last modified: Tuesday, August 10, 2021, 12:09 PM Page 2
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