What Are the Benefits and Drawbacks of Franchising a Business?
Provided by HG.org
When considering buying or building a business, many individuals may feel the better option is through a franchise. However, while there are certain benefits of following through this this action, there are also drawbacks that the potential business owner needs to understand before committing to franchise business.
The advantages may outweigh the negatives of purchasing a franchise to start business, but research into each company is necessary for anyone seeking to start or buy a company. One of the most important benefits is that an already established organization has been implemented in the area that is observed. This means that a successful mechanism has been created by someone else and additional buildings and stores have been opened in locations with potential customer bases. However, some of these are more successful than others, and the franchisee should ensure he or she is aware of just how much revenue is being accrued in the area looked at with the corresponding franchise.
While purchasing a franchise and starting out with an already established company is an asset, the initial costs could be enough to lose possible profits early on in the business. This means that there could be taxes, licenses, additional building expenses, materials and even marketing and advertising issues. The franchisee must consider all the possible items that must be purchased when first starting out, and this means knowing how much and who to market to after beginning. If the franchise was inefficient previously, there is an opportunity to advertise to the consumer base appropriately. But everything costs more than simply buying the franchise from the parent company.
The Advantages of a Franchise Explained
When the company has already been established, there are no requirements in testing products, services and similar items with customers and clients. These concerns have already been addressed by the parent company and those that owned the franchise prior to the new buyer. Additionally, no new ideas are necessary to create the company initially. These may be implemented later, but are not necessary initially. The brand has been created, and a trademark may have been purchased. This means that no additional expenses are needed for the intellectual property. The franchisee is supported by the franchisor during his or her ownership of the franchise.
With the company established, no previous experience in the services or products is necessary. However, it is important to understand what is being sold. With this knowledge it may be possible to appropriately sell the items. However, no skills are needed by the franchisee. The employees may have already been hired, and this could be a boon when they have training and knowledge about what is being sold and how to deal with customers. The franchise does permit small businesses the ability to compete on a larger scale, and the added support of the franchisor assist with these concerns.
While the purchase of a franchise may cost less, there are additional expenses such as materials, inventory and labor. These must be factored in when buying the location. If the new owner is not aware of other costs, he or she may lose revenue before the ability to accrue it. This could mean that the expenses associates with the franchise may be higher than expected. There are often restrictions on what may be accomplished provided by the franchisor. This could mean no options for changing the local market, product or services. Monitoring from the franchisor may feel and become intrusive. There may be certain updates that are provided to the parent company that could rub the new owner the wrong way.
If the franchise is purchased when the franchisor is going out of business, the new owner may find no support in place. Some franchisees that are associated with the location could have previously or currently in other locations give a bad name to the business. This could be from scandal, illegal activity and from certain practices. Selling the franchise when the business opportunity has come to an end may be difficult as the parent company must approve the buyer. All the profits earned by the location are shared with the franchisor. Other changes may also be restricted based on certain factors put in place by the franchisor.
Franchise Legal Expert
When considering buying a franchise, it may be important to contact a lawyer. This legal representative may be needed during the operation of the location, and he or she could be necessary for all files and documentation.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.