| A franchise business is a business in which the owners, also called franchisors, sell their rights to their business. For instance, a business logo, name, and model are licensed to third parties in what is called a franchise agreement. Therefore, these are franchises that are owned by independent, third-party operators, called franchisees.
Franchises are an extremely common way of doing business since there are different types of franchising. In fact, it’s difficult to drive more than a few blocks in most cities without seeing a franchise business. So, what is a franchise example? Prominent examples of well-known franchise business models include many food chain restaurants, such as McDonald’s and Subway.
In this article, we will provide you with an overview of the franchise business, along with its pros and cons.
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Is Operating As A Franchise More Beneficial?
Here are several pros and cons of the franchisee business model. Surely these will help you make the best decision regarding your investment.
Pros Of Franchise Businesses:
Established Brand and Customer Base:
The biggest advantage of purchasing an established franchise is the strength of the brand. And with it comes the loyalty of its customers and free services.
Marketing Support:
Franchises often have the support of a national campaign. At the same time, ready-made marketing materials for a local campaign.
Reputable Suppliers:
Franchisors often have established relationships with suppliers for all the materials franchisees need.
Business Support:
You will get a lot of support as a subsidiary business of a franchisor. Because of the whole connection of networks available at your fingertips.
Training:
Most of the franchises offer management and technical training. Although usually at a higher cost than the market rate.
Financial Assistance:
Moreover, franchisors provide loans and other assistance to help franchisees succeed in business.
Access to Proprietary Methods:
There's no need to reinvent the wheel as franchisees get access to all the trade secrets.
Ongoing Research and Development:
Franchisees can stick to improving their operations and let the franchisor spend the time and money developing new products.
The Boss:
As with owning any business that you own, you are in control of your destiny.
Reduced Risk:
For all of these reasons, starting a franchise of an established brand often has less risk than starting a business from nothing.
Cons Of Franchise Businesses:
Franchise Fee and Start-up Costs:
Some of the bigger franchise operations can involve very large initial costs. Sometimes, more than what it would cost to start your own business.
Royalty Payments:
As a franchisee, you will have to pay some percentage of the revenue back to the franchisor. Hence, reducing your profit potential.
Marketing or Advertising Fees:
Receiving the wonderful marketing support from the franchisor. Although the franchisees must pay these fees, according to some contracts.
Limited Creativity or Flexibility:
Most franchise contracts have very explicit standards, allowing little or no alterations. Hence, stifling any creativity on the part of the franchisee. You must use their system, follow their rules.
Long-Term Contract:
If you lack in your initial research, then you find yourself with the wrong franchise, hence, stuck for many years. So, make sure to research thoroughly before starting a business.
Dependent on Franchisor Success:
The reputation of your franchise is directly proportional to that of the franchisor. Therefore, any difficulties that the franchisor encounters will have a direct impact on you.
False Expectations:
Opening a franchise doesn’t mean your own business proffers no parameters of success. You still need to have sharp business acumen to develop it further.
Risk:
Just like no pain, no gain theory, without risk in business, there is no success.
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Conclusion
Alas, no business or work in the world does not involve devotion and hard work for it to succeed. Whether it's a franchisee or a start-up, you can only achieve the great heights of success by working with discipline. So, stay calm and make wise decisions.
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