What is franchising? Why is it attracting so much audience? Why is it becoming so popular? Some say it is good for businesses, others argue for its countless disadvantages. The debate on the advantages and disadvantages of franchising is the hot talk in the business industry these days.
Do you have such confusing thoughts and more? If yes, then fret not, this article will help you decide the nature of franchising completely.
Let’s set the debate, of the advantages and disadvantages of franchising, in motion.
Advantages of Franchising
In recent times, the business sector is noticing a rise in the adaptation of the franchising model. The majority of the rising entrepreneurs are preferring to opt for a franchise model rather than creating a separate identity.
One would argue that this is not the right approach and it can be harmful but it’s helping them. They are finding it more advantageous, are being attracted to more short-term monetary benefits, and as a result jumping on the franchising bandwagon.
Let’s have a look at a list of the advantages of franchising.
Ask any entrepreneur, the value of buying power and prepare to get hit with an hour-long descriptive explanation with facts and figures. The significance of the buying power of a business is special and unique to every individual business.
With the introduction of the franchise model, businesses have the advantage of utilizing the facility of being under a single banner. This helps in the increase of its buying power as it portrays a much more professional image than normal vendors and suppliers.
One of the most common issues of new-born businesses is how do they acquire their desired amount of capital to set the matters into motion. Luckily, the reputation of the parent companies in the franchise model help the businesses in this regard.
Everyone knows that to raise the capital you either need to stand-out on the basis of your performance, or you simply need to be famous. The franchise model banks on the latter point and provides an ease to its franchisees.
Although this point does not need an explicit need for statement, new businesses are likely to struggle due to their managerial issues in the beginning. The reason behind this is that they fail to find the best fits in their management.
On the other hand, the franchising model provides a knowledgeable business operator to its franchisees to ensure the management is of the highest quality. The business expects the business operator to possess advanced institutional knowledge to help them excel.
The most important advantage of the franchising model is the experience that it possesses at its disposal for the rising businesses. It is unanimously agreed upon fact that nothing can replace the significance of the experience.
The parent companies are seasoned players who have been out there in the business industry for a while and know their way around financial matters. This experience proves as a great supporting factor for new businesses to outshine the normal vendors.
Rate of Failure
The thought of failure, the presence of a contingency plan are equally important in business as the business idea itself, if not more. Strategists believe that the business sector thrives on a U-shaped graph, where a company can be at the top on one day and on the verge of bankruptcy at the other.
Hence, the importance of the analysis of failure. As per the detailed statistical analysis, there are proofs that a franchise model has far lesser rate of failure in comparison to an adolescent business entity.
Franchising done by the parent company allows the franchisee businesses to thrive without the fear of failure. It is the parent company’s reputation and financial standing that supports them to be fearless and boost themselves to move forward.
Disadvantages of Franchising
As much as the franchise models provide a shiny outlook of monetary benefits, there are a huge number of down sights when businesses opt for a franchise model.
Let’s have a look at a list of the disadvantages of franchising.
Damage in Reputation
The most frightening factor for a business in the business industry is the fear of developing a bad reputation. The normal vendors are solely responsible for their actions and therefore, are responsible if they develop a bad reputation.
However, the franchisees of a parent company can be affected in a franchise model if that parent company goes on to develop a bad name in the business industry. The reason for the tarnish in the brand image is not the point of focus here.
It’s just that even if the franchisee businesses have been abiding by the rules of the parent company, they can be stained if the parent company falls into hot water.
Obviously, since a new business is under the umbrella of a parent company, the parent company gets to earn a chunk of total profits in the shape of a supposed subscription fee. On the contrary, normal business vendor don’t have to share their profits with anyone as their income is the byproduct of their individual efforts.
Lack of Privacy
One of the most disturbing advantages of franchising is the lack of privacy for new businesses. Since a new business is dependent on its parent company, the parent company enforces the usage of its operating system that can be easily monitored.
The parent company always likes to be in control of its franchisees to ensure that they do not harm the parent company, both willingly or unwillingly.
However, this can be frustrating for a new business because of the constant checkup on its activities that lead to irrelevant questioning regarding its tactics and strategies.
I’m sure all creative readers will agree that creativity demands freedom. Nobody can claim that creativity can survive inside boundaries, under limitations. Well, the sad part is the franchise model does limit your creativity.
Since you are stepping into the professional setup of your parent company, you have to follow their directives. All kinds of changes and decisions are dictated and reduce the span of creativity.
As far as the parent company is concerned, they defend this point as their right to retain their reputation by not letting a franchisee do something that can hurt the parent company’s value and image.
Unusual Initial Investment
Though it might seem logically fair, the initial investment done by rising businesses in the franchise model proves to be hurting in a number of ways. Since many people fantasize about the franchise model, they want to select the best possible franchise for their business. However, with greater reputation comes a greater initial investment.
In terms of financial matters, the franchises have the right to charge highly considering their hard work and reputation. However, these investments force businesses to stick with the franchises even if things don’t go out as mutually planned.
As the numbers dictate, franchising has proved its mettle and showed the business sector why is it better. Many strategists consider it the smart move.
Based on the detailed information provided above, we believe you must have a discreet perspective of the franchising model. You must have a decisive point-of-view about whether franchising is beneficial for businesses or harmful.
Let me know how helpful was this article for you? What did I miss? Did the article solve the “advantages and disadvantages of franchising” debate? Any more advantages or disadvantages that are implicit and have been missed by me? Please comment on your feedback away.
Have a nice day!