Franchising a business means distributing a trademark of a business in return for some amount or a percentage in monthly sales. It helps in the expansion of business without considering the operational expenses. It can also minimize the risk and helps to concentrate in the growth of a business.

There are lots of difficulties with the franchise based business. Franchisors have to be more careful in selecting franchisees than appointing direct employees for the expansion of business. Incompetent employees can be more easily replaced than incompetent franchisees. Also incompetent franchisees can harm the reputation of the company.

On the other side franchisees also face lots of difficulties in carrying out business. They have to invest a large starting amount for the agreement without having any surety of financial success. Apart from the initial capital, large investment is required in Bookkeeping, Finance & Accounting etc. Although franchisee can use the trademark of franchisor, franchisee has very less control over the business.

The franchise agreement gives no right to franchisee to change the outlook, standard uniform, marketing materials or the price of any commodity. Sometime a small conflict between franchisor and franchisee can destroy the franchise agreement and can results into a long battle.

In UK, British Franchise Association is a self regulating governing body which helps in maintaining good relationship between franchisees and franchisors. The ‘code of ethical conduct’ adopted by BFA contains some clauses which all the members should abide by.

In US, Federal Trade Commission helps in maintaining healthy relationship between franchisee and franchisor. Disputes between them are solved under the jurisdiction of their state.

People out of work, or worried about losing their jobs and not inclined to keep looking for employment might want to consider purchasing a franchise.

And buying into a franchise system can be a smart investment for someone who doesn’t feel secure about a future working for someone else. An auto service, fast food outlet, mailing center or other kind of franchised business can provide a solid and predictable income.

But that choice has some dangers and drawbacks that the franchisors don’t always mention when they’re signing up new franchisees and collecting substantial fees from people who want to buy a business.

It’s easy to get fed up with a corporate gig, especially for those who’ve been laid off. The right career path might be purchase of a franchise, but it’s useful to know, before hand, some of the facts that suggest franchise ownership is a good choice. And also to know why it might be the wrong move.

PRO

A proven system is one of the key advantages offered by franchisors. You’ll hear when examining a franchise business to buy, that the franchisor has already learned how to operate the business effectively. They’ve made the mistakes, so to speak, saving you considerable time and money. They’ve built up a recognizable brand and figured out the best way to promote it.

Buying a franchise often is easier than getting an independent business for sale because a potential purchaser has plenty of people–other franchisees–who can help with the due diligence by discussing their own success and problems. And acquiring a franchise usually can be accomplished with better financing than is available when buying an independent (non-franchise) company.

Once in business, many franchisees appreciate the practical and experienced advice they get about building sales and avoiding problems from the franchisor. And they benefit from pricing and service advantages when purchasing products and supplies that they can acquire with other franchisees at group rates.

CON

But buyer candidates are advised not to get swept away by the franchisor’s assurances and enthusiasm, because franchises fail more frequently than the parent companies admit. And there are some negatives to this business strategy that the franchisor won’t reveal.

The first drawback, of course, is the need to pay a fee of several thousand dollars, maybe tens or hundreds of thousands, just for the privilege in investing in the business. That chunk of cash is required in addition to the money a buyer has to produce for build-out of a new franchise or acquisition of an existing business for sale. Then there’s working capital and marketing money that must go into the pot. Financial help from the franchisor is a definite benefit of getting involved in the business. But prospective buyers should do the math to make certain there will be enough income remaining after debt service to justify the price and the terms.

And while there is benefit to a system that is proven to work in producing and selling products and services, it also means limitations. The franchisee usually can’t expand the business by addition of say, ice cream cones at the sandwich shop, or by performing brake jobs along with transmission repairs. Violation of the franchise agreement by breaking the rules can have dire consequences, such as losing the business and all that was invested.

Prospective franchise owners also need to understand the risk that comes with a well-known brand name. Just ask fast food franchise owners who suffered a big drop in business, not their fault, because of bad publicity when another franchisee sold contaminated french fries.

Like evaluating any business problem, a key to deciding on whether to buy a franchise is to rely in great measure on common sense. Another key is to learn as much as possible about the industry in which the company is involved.

Any individual that has started up a business on his or her own can attest to the difficulties of getting one’s name out in public and attracting customers. This is true regardless of whether the new business is a restaurant, a shoe store, or any other form of commercial endeavor. Because of this difficulty and the competition with known entities in whatever field, many small businesses don’t make. Fortunately for franchise owners, the difficulty of beating out the chains is mitigated by virtue of owning a franchise.

Quite possibly the most important advantage of owning a franchise is the name recognition. The established name recognition of a franchise provides a lot of instant business to any chain. Franchise names are trusted and are known entities, thereby increasing the number of people who will give the restaurant or new location a shot because they recognize the name and feel it is “safe.”

Another benefit of franchises is that they have the support of an entire huge business behind them. When a small business is linked to a big business, there is a high probability that the small business will do well because of the support of the established big business. The same thing applies here. The small business is the individual franchise owner and the big business tie is to the large corporation.

In addition, franchises have the advantage of not having to handle marketing of their restaurant or location on their own. The majority of franchises have national ad and marketing campaigns or at least regional campaigns to support their franchises. An advantage here is that the franchisee doesn’t have to go through the direct expense of buying the ad time on TV, printing up the individual flyers for newspapers and mailboxes, or any of the hassles of marketing his or her own business. The corporate office will most likely do all of that for the individual as part of the franchise fee.

Purchasing power is a huge additional benefit. The main corporation will generally make all of the contracts for production and then sell the items or supplies to the individual franchises. This again reduces the efforts of the franchisee while still ensuring that a supply will make it to the franchise. Supplies, equipment, toys, food, or anything that the franchise needs can generally be purchased through the franchise corporation as opposed to the franchise negotiating on an individual level with each supplier.

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