Advantages and Disadvantages of Franchising

431 Words2 Pages
ADVANTAGES OF FRANCHISING: 1. Financial: A franchise is another source of income; franchisee has to pay the fee, levies and royalty. If the fees are sum up, they normally cover all expenses such as rent deposits and opening expenses. Another important benefit is reduced costs- distribution, operating and advertising. With reduced costs, company can allocate resources to other activities, such as research and development, so they can have constant improvements and growth. 2. Operational: Franchising is about evenness of procedures, which reflect on consistency, strengthened productivity and better quality. Franchisee operators are usually highly motivated for success, as they invest quite a lot of money and time in the business they are running. Therefor they work hard to show best possible results. Good results lead to satisfied customers and even increase in customers. Franchising also allows franchisor to avoid employee related problems that can be pretty costly and stressful, as people are employed by the franchisee. 3. Administrative: Entering new market by franchising actually brings smaller central organizations, which means that there is more cost effective labour force, more effective recruitments, less papers and stress for the company. 4. Strategic: With franchising, the risk is divided between the franchisor and franchisee. Company opens new location on behalf of franchisee’s money. Franchising eliminated the three big issues of money, managers and employees. DISADVANTAGES OF FRANCHISING: 1. Sharing important information about business: It is always very risky to share your confidential business information, as you may never know who is trust-worthy. This may endanger your whole business. 2. Find the right person with resources: Finding the appropriate franchisee, that at the same time has the considerable capital to allocate it in the
Open Document