Explain the advantages and disadvantages of franchising to franchisee and
franchisor (write at least 3 points for each) give examples
Answers
Answer:
Some of the advantages to franchising your business include:
Capitalized Expansion – Expansion requires the investment of capital and resources that for many successful business owners is limited and‚ sometimes‚ difficult to raise. Franchising serves as a source for the capitalized expansion of a successful business. Rather than borrowing funds from lenders‚ franchisees invest their own funds to expand your business.
Continuing Revenue Streams – Successful franchisors benefit from continuing royalties that are‚ typically‚ based upon a percentage of franchisee gross sales and paid on a monthly basis.
Brand Development – The Multi-unit expansion associated with franchising serves to supplement and expand the value of your brand. Franchisee contributions to local and regional advertising further serve to expand brand recognition.
Economies of Scale – If managed properly the multi-unit expansion associated with franchising results in increased volume purchases and leverage with business suppliers and vendors.
Managerial Talent – Franchisee owners – who have invested their own capital and savings – typically serve as better managers and operators than paid employees who do not possess a vested interest in the business.
Some of the disadvantages to franchising your business‚ include:
Legal Regulation – Franchising is a regulated activity and requires compliance with federal and state franchise laws. To successfully establish a franchise‚ franchisors are required to work with an experienced franchise lawyer to establish a solid blueprint for franchising.
Investment – Although franchising serves as a source for the capitalized expansion of your business (i.e.‚ franchisees invest in your expansion)‚ the estabblishment of a franchise system requires the investment of capital to cover legal fees and the cost of establishing a franchising infrastructure