Franchising Pros and Cons: Understanding the Benefits and Risks to Make the Best Decision for Your Business
Wondering how to start a franchise? Franchising your business is one of the most effective ways to spur greater profit and growth. Before you franchise your business, however, it’s important to understand the pros and cons – so you can make an informed, effective decision.
Advantages of Franchising
Franchising Accelerates Expansion
Fees paid by your franchisees cover the major capital expenses involved in your business expansion. Since franchisees willingly cover opening expenses like rent deposits and fixtures, you will significantly reduce your reliance on borrowing.
Franchising Simplifies HR
Employees of any franchise location are employed by the franchisee, not by the corporate office. The headaches of hiring, training, and developing talent are externalized. This means less business overhead and fewer issues related to worker’s compensation and insurance.
Franchising Reduces Operational Complexity
After setting up the standards and best practices you expect franchisees to abide by, you can largely step away from day-to-day operational concerns. This frees the founders to focus on areas they excel at without having to worry about “putting out fires” – as that becomes the franchisee’s responsibility.
Franchisees are Driven to Succeed
Franchisees are usually experienced entrepreneurs who know the life cycle of your industry. Even first-time franchisees are motivated to succeed, using your brand and organization as stepping stones to gaining greater business acumen. Thus, they make effective partners in reaching your goals.
Franchising Can Bring You to a National or Even Global Level
Most first-time franchisors pursue a strategy built around sustainable growth – but sooner or later, it’s possible to scale beyond the home geography. Taking on the national or international market becomes much easier under a franchise model.
Up-Front and On-Going Revenue
Franchisees pay you a large sum of money upfront referred to as Initial Franchise Fee. You also receive a percentage of on-going revenue on a weekly or monthly basis.
Risks of Franchising
Although most franchisees work hard to meet your standards, franchising means they will have room to interpret the rules and innovate. You won’t have total control over their interactions with customers though you can insist that franchise operators provide a consistent experience.
In a franchise model, franchisees are the operators and they assume all the costs associated with setting up the business and running the business. For that reason, they will earn the profits from the sales, but are required to pay you a percentage of their sales.
Franchises must abide by complicated disclosure requirements at both the state and federal level. Working with a competent franchise consultant and attorney is essential. It not only protects your company’s good name, but also makes the operation of each location run more smoothly.
There are many great reasons to franchise – and for businesses at the right stage of maturity, the advantages of franchising win hands down. Working with trusted franchise services from Franchise Creator can help you simplify franchise development, leverage the advantages, and curb the risks.
To speak with the experts, contact Franchise Creator today.