Franchising your Business: Advantages verses the Disadvantages
If you are a successful business owner who is considering "franchising" as a potential business model for the continued expansion and development of your business, you may be questioning:
What are the "Advantages" of Franchising? and
What are the "Disadvantages" of Franchising?
These questions are important and the answers to them should assist with your analysis of franchising and any determination as to whether or not franchising is right for you.
THE ADVANTAGES OF FRANCHISING Franchising is a proven business and distribution model that is focued on facilitating and achieving multi-unit expansion through the contractual and collaborative efforts of both franchisor and franchisee. Some of the advantages, include:
Multi-Unit Expansion - Franchising is a vehicle for growth and expansion. Franchisors benefit from the expansion of their business through the efforts of franchisees;
Capitalized Expansion - Business expansion requires the investment of new capital. To expand your business and open multiple units, typically, you will be required to invest your own funds or to borrow the funds. As a franchisor you will obtain the benefit of achieving unit expansion that is facitalitated and capitalized by your franchisees - not you;
Managerial Talent - Business expansion requires dedicated managerial talent. Assuming that you choose your franchisees wisely, franchising affords the benefit of dedicated operators who not only manage their franchised locations but who also have a vested equity interest in the business.
Additional Revenue Sources - As a franchisor - depending on how your franchise agreements are structured - you will receive additional income streams in the form of on-going royalties paid to you by franchisees. These royalties are commonly paid on a monthly basis and based upon a fixed percentage of the franchisees gross sales.
Scalability - Franchising is highly scalable and may be refined and customized to account for a broad range of franchised expansion. Franchise programs may be established for both (a) franchisors focused on large volume national growth, and (b) franchisors focused on low volume regional growth.
THE DISADVANTAGES OF FRANCHISING With the advantages of franchising come additional obligations. As with everything in life there are disadvantages. Some of the disadvantages of franchising, include:
Regulation - Franchising is a regulated industry. To ensure the proper development and operation of your franchise system you will be required to invest money in legal fees related to the development of a Franchise Disclosure Document ("FDD") and Regulatory Documents and filings that satisfy federal and state franchise laws.
Capital Investment - To establish a franchise system you will be required to invest start-up capital to establish your franchising infrastructure. A significant component to this infrastructure includes your regulatory compliance obligations and your attorneys development of the FDD. Funds and time will also be required for the purpose of establishing systems and programs to be provided to franchisees.
Business Obligation - Once you "franchise your business" in many respects you will be leaving the role of "business operator" and taking on the role of "franchisor". This role will require the management of your franchise system respecting franchise sales, advertising, product development and service development. These are all things that are interesting for many entrepreneurs - but they are nevertheless obligations that must be undertaken.
When considering franchising there are many factors to be evaluated. Knowing some of the advantages and disadvantages is a good "starting point" but much more analysis is required. This includes a thorough analysis of your business and the procedures necessary to properly establish a franchise system. Learn more about"How to Franchise Your Business". Also see our Franchise Video and get the franchise book.
IMPORTANT DISCLAIMER: The information contained on this website is provided for general educational purposes only, should not be relied on as legal advice and does not serve to create an attorney client relationship. In utilizing this website you acknowledge that there is no attorney client relationship between you
and Charles N. Internicola, Esq. and that the information contained on this site does not and cannot serve as a replacement for the competent legal advice of a licensed attorney in your state. Further you acknowledge that any and all citations to cases and statutes must be independently verified by competent legal counsel to confirm the validity and accuracy of such information. The content of this site is subject to the Copyright of its author and owner, Charles N. Internicola, Esq.
