Advantages and Disadvantages of a Franchisor
When a company owner feels as though his or her business is at its peak, then he may be interested in entering the franchising market.
With this a franchisor faces certain advantages and disadvantages that come with owning a franchise.
Franchising is a good way to get more money and success for your company. As a franchisor there are several opportunities that are now open to you though not all will be as beneficial to the company as you think. Though franchising has several advantages it still comes with its own set of risks and disadvantages. From a financial point of view the franchise will bring in more revenue for the company and expand its overall name. The products and services under the franchise belt will gain more popularity and reach bigger audiences because of the franchise expandability and its tread on more ground. You will also be receiving continuous fees for the franchise such as the royalty fees, the marketing and advertising fees and any other fees you may have set up at the initial franchise agreement.
As a franchisor you will have administrative control over all the franchises. You call the shots on what can and cannot be done when it comes to the franchise and the franchisees under you will have to follow suit or face the risk of being charged with legal sanctions for breach of contract. The franchise agreement will be your ticket to lay out the cards on what is permitted within the franchising system and what isn’t.
The franchise does also however, cost a considerable amount of money that can burn a hole in your capital requirements. As franchisor you will need to supply the necessary funds to provide for the supplies, equipment, materials as well as the training and support necessary for the applicants and franchisees.
The reputation of the company is at risk when put under the franchise market. Since the franchisor cannot always take the reins on what has to be done at the independent chains, there is a potential risk factor that involves the company being brought into bad light due to the fault of a franchise. Sadly, even a remote failure is bound to affect the entire franchise and could result in a bad reputation for the company. Same goes with the system and trade secrets involved in the company. Since the franchisor will be giving out tools for success, the franchisees will be let in on how the company is being manned and run, with that several trade secrets may be let out and put in the wrong hands. The more people there are that know of something confidential, the greater difficulty it is to control these bundles of confidential information.
With that it is really up to the company owner to decipher if he or she is willing to take the risks and if he believes that his company can manage a franchise.
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