Advantages of Franchising to the Franchisor (Business Growth Series 5)
The previous article in this series was an outline of five advantages and merits of franchising to a franchisee who could be an entrepreneur wishing to grow his or her business. In this fifth edition of the Business Growth Series, we will be looking at some advantages of franchising to the franchisor who sells the franchise. Expansion ... Continue Reading
The previous article in this series was an outline of five advantages and merits of franchising to a franchisee who could be an entrepreneur wishing to grow his or her business.
In this fifth edition of the Business Growth Series, we will be looking at some advantages of franchising to the franchisor who sells the franchise.
Expansion risk, capital requirements and cost advantages that result from extensive buying power are some advantages a franchisor gains through franchising.
In order to use franchising as a business expansion or growth method, the franchisor must have established value and credibility that someone else is willing to buy.
Do you want to sell your franchise as a franchisor and expand your business?
Here are some advantages that will encourage you to proceed if you have established some credibility for your brand.
A franchisor can expand a business nationally and even internationally by authorizing and selling franchises in selected locations.
The capital requirement for this expansion is much less than it would be without franchising.
The franchise value depends on the to-date track record of your company or firm, the franchisor and on the services offered to the entrepreneur or franchisee.
Also operating a franchised business requires fewer employees than a non-franchised business. This allows the franchisor to maintain low payrolls and minimizes personnel issues and problems.
A franchisor can purchase supplies in large quantities, thus achieving economies of scale that would not have been possible otherwise.
A franchisor can produce parts, accessories, packaging and raw materials in large quantities, then in turn sell these to the franchisees which they are required to purchase as part of the franchise agreement; and they usually benefit from lower prices.
Ability to commit larger sums of money to advertising is the biggest cost advantage, as each franchise contributes a percentage of sales to an advertising pool.
The pooling of resources allows the franchisor to conduct advertising in major media across a wide geographic area.
Disadvantages of Franchising
Problems between the franchisee and franchisor are common. To the franchisee, inability of the franchisor to provide services, advertising and location as promised in the franchise agreement is a major disadvantage.
The franchisee may also face the problem of a franchisor’s failing of a franchisor’s failing or being bought out by another company.
If this happens, some of the support services as promised in the terms of agreement may not be available and this could cause the franchisee to go out of business.
Certain risks and disadvantages could also be incurred by the franchisor in choosing the expansion alternative.
The franchisor may find it very difficult to find quality franchisees. Poor management in spite of training and controls can still cause individual franchise failures which could in turn reflect negatively on the entire franchise system.
Also as the number of franchises increase, the ability to maintain tight control becomes more difficult.
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