Disadvantages of Franchising to the Franchisor
Just like with any other business move, bringing a company into the franchising market can also pose potential risk factors and disadvantages on the franchisor.
Franchising is a common business option for existing and established businesses to take when they want to expand on their company.
There are several advantages of the franchise market such as the increase and widespread of the trade name, its products and services, the larger capture of the target audience as well as many other factors. Alas, like any major business decision it also comes with its own set of disadvantages.
The main disadvantage is the price of franchising. The price of setting up the franchise which will encompass everything from the utilities needed, the documents and registrations, licenses, legalities, accounting and financing, hiring and training of staff and employees and other factors will cost a considerable amount of money. The would-be franchisor has to first be very sure about his or her own business before he engages into franchising the business. The people that would be potential applicants of the franchise will want to select a franchise that will guarantee them their money’s worth. If this is not considered, the franchisor could lose a lot of money by engaging his business in a franchise that has no franchisees applying for it. The cost it took to set up the franchise and the training and amenities will be put to waste.
Another disadvantage is the sense of control. Even if the franchisees follow only one specific contract and franchise agreement, there is still the tendency for these to go through loopholes. There is no way a franchiser can gain total control over what the franchise branches do or how they operate. With that the overall reputation of the company could be at stake with just one false move of a franchise branch. This is because the franchise encompasses all of the businesses under the trade name making the fault of one the downfall of all. It is very difficult to establish an effective monitoring system that will be able to check the activities of all the branches, especially if there are many existing ones already.
The profits involved in the franchise are also a disadvantage. Though the actual business is owned by the franchisor, the profits do not go directly to him rather they are shared among the franchises. This will make a lesser reap for the franchisors as their returns are lower.
Legalities in terms of franchises are also a great disadvantage. As mentioned earlier the fault of one franchise could be the downfall of the entire company. If a lawsuit was brought about then the company name would be brought into the dilemma and would also have to face legal sanctions and put to trial.
So before you decide to franchise your business make sure to first go through the advantages and disadvantages to properly review whether or not your company is prepared to take this step on the roadway to success.
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