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Advantages and Disadvantages of Franchising Your Business

Kate's Cupcake Shop Franchising Are you a successful business owner? Are you looking for ways to expand your business? If so, this article will provide the answers you need to decide whether franchising your business is the right step for you.

In short, franchising allows you, the franchisor, to create a relationship among several independent businesses, or franchisees, in order to reach the same goal of getting and keeping customers under your established brand. It is a business model that can benefit multiple parties, and therefore, there are several advantages and disadvantages to consider.

What Are the Advantages of Franchising Your Business?

As a proven business and distribution model, franchising provides the following benefits for franchisors:

  • Cost-Effective Expansion – Franchisees handle the research and funding for outlets in your chain, which means you do not have to spend your own capital or request additional funding from banks or investors in order to grow your business.
  • Marketing Support – Every franchise location uses the same tried and true marketing plans, which helps eliminate the costly guess work when starting an independent business. You will also have the power of a national and/or regional advertising fund.
  • Additional Sources of Revenue – As the franchisor, you will receive additional income in the form of on-going royalties paid by your franchisees, depending on your franchise agreement. Royalties typically include a monthly fee including a percentage of the franchisees gross sales.
  • Acquiring Talented Managers – The managers chosen to run each franchised location will have a vested interest in its success, unlike a salaried employee, and will be responsible for handling any issues related to employees, workers’ compensation, etc.
  • Scalability – Depending on your needs and goals, you can customize your franchise agreement to focus on large volume national growth or low volume regional growth.

What Are the Disadvantages of Franchising?

Of course, the many advantages of franchising your business also come with several obligations and shortcomings. These can include:

  • Capital Investment – Establishing a franchise requires investment of time and money in business development, a flagship store, legal document preparation, marketing and packaging plans, and recruiting franchisees.
  • Less Control – The franchisees will agree to follow your training and instructions, but you may not be able to make changes without running into disagreements. Your franchisees are still independent businesses and negotiations may be necessary.
  • Costly Legal Action – In the event that a franchisee refuses to cooperate or proves unprofitable, legal action may be required, which can be both costly and damaging to your reputation among other franchisees.
  • Regulation – Franchises are regulated by state and federal laws, requiring the development of a Franchise Disclosure Document (FDD) and other Regulatory Documents with the help of an attorney.

Understanding some of the advantages and disadvantages of becoming a franchisor is a great starting point. For further information or guidance regarding franchising, please do not hesitate to contact The Internicola Law Firm, P.C. by calling (800) 976-4904 or simply clicking the Live Chat option on this page.

Learn More

So understanding some of the advantages and disadvantages of franchising your business is a good starting point. If business expansion is your goal franchising may be the answer. Learn more about franchising your business:

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

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