Franchising is a popular way for entrepreneurs to fast-forward their small business ownership ambitions. Franchisors provide a tested and proven base structure of the business, freeing their franchisees from having to invent the operational wheel. Franchisors also provide ongoing guidance, innovations, and tested marketing materials. And … new opportunities emerge on an almost daily basis.
According to www.smallbusiness.aol.com, who ranks the Franchise 500’s Top 10, places Subway at #9. Subway added 2,000 stores in 2010, including 800 new locations outside the United States, and it expects to open 2,100 sites this year. Hampton Inns & Suites ranked number 1, “not because it bundles for free services that more upscale hotels charge through the nose for, or because it has a customer satisfaction guarantee (your money back if you’re displeased for any reason, no questions asked) that’s borderline insane, or because it just put waffle irons in all of its hotels. None of these hurt, but Hampton is tops because it listens to consumers and takes their ideas to heart.”
However, even with its many attractive advantages, franchising has risks and challenges that need to be considered. The biggest mistake is to believe that franchises never fail. Although the failure rate is much lower than that of independent businesses, the franchisee still must have the necessary commitment and drive to make the franchise successful. Thoroughly research the franchising opportunity, study the competition, and develop ideas to determine how you can do it better. And keep in mind that purchasing a franchise also requires a substantial financial commitment.
www.businessmart.com lists advantages and disadvantages of franchising:
Advantages:
- There is a higher likelihood of success since a proven business formula is in place. The products, services, and business operations have already been established.
- Bankers usually look at successful franchise chains as having a lower risk of repayment default and are more likely to loan money based on that premise.
- The corporate image and brand awareness is already recognized. Consumers are generally more comfortable purchasing items they are familiar with and working with companies they know and trust.
- Franchise companies usually provide extensive training and support to their franchisees in an effort to help them succeed.
- Many times products and services are advertised at a local and national level by the main franchise companies. This practice helps boost sales for all franchisees, but individual franchisees don’t absorb the cost.
Disadvantages:
- Franchises can be costly to implement. Also, many franchises charge ongoing royalties cutting into the profits of franchisees.
- Franchisors usually require franchisees to follow their operations manual to a tee in order to ensure consistency. This limits any creativity on the part of the franchisee.
- Franchisees must be very good at following directions in order to maintain the image and level of service already established. If the franchisee is not capable of running a quality business or does not have proper funding, this could curtail success.
- Sometimes franchisors may be lax on their commitment to support the franchisee. Also, they may make poor decisions that would have an ill effect on the franchisee. Therefore, it is important to research any franchise concept thoroughly before signing any agreements.
And don’t forget to do an in-depth due diligence with other franchise owners. Also, as with any other type of small business, a thorough, well-crafted business plan will help you determine where you want to go, and the best way to get there. This will better enable you to set milestones for future business growth such as purchasing additional franchises.
As published in the Daily Courier
