Advantages and Disadvantages of a franchise

Franchising is a very lucrative form of business in today’s times.

Well, to be honest, to get associated with a reputed brand and dealing with already earned customers not only pays you well on a long run but also give you a foothold to do business for yourself.

More than half of the population in the UK are engaged in franchising business, as franchisors, franchisees or as being engaged in supporting the sector (like that of franchise consultants). Approximately 25,000 are franchisees, running their 39,000 franchised units in the U.K. When it comes to franchising opportunity for your business, it should depend on your type of business, your target customers, your own personality, your products and services. Franchising is a form of business strategy that requires business owner (the franchisor) allowing other persons (the franchisees) to use their trademark and brand name for expanding the business, in return for a fee.

franchise summary

No doubt, the business owner offers you continual support in the form of advertising and marketing, training and often finance. Lot many franchisees are available in the U.K which have their brand presence in the U.K market which includes the Autosmart, Right at Home, the van franchise, the home care franchise, the commercial cleaning franchise and Total Clean and much more. In case you’re striving hard to get the Mc Donald’s or a Subway franchise, it’s evident you need to do adequate research in order to ensure the best strategy for growth.

Advantages of a Franchise

What exactly Memorandum of association stands for ?

A franchise can appear to be a lucrative option with a number of advantages it possesses as it offers the choice of those who wish to without any risks attached to it. Let’s see what advantages franchise has in its store:

established business

An established business

The franchise runs under the name of an already established business. It has the potential to carry the ideas, the brand, and the operating techniques at a new location which once were tried and tested by the original company.

business financing

Easy Business Financing

The procedure is very simpler when it comes to securing business finance as who are keen to invest in a business with an already established network, secure the brand and reliable support structure. In most of the instances, funds may be obtained from the franchisor, making life even easier for the new business.

Business Relationships

Business Relationships

The benefit of all business relationships can also be taken by the franchisee which has already been set-up by the franchisor. In all cases, the relationships with suppliers are easier to manage. Also, the new business too can benefit from the already established relationships with marketing teams and advertisers.

Support and Security

Support and Security

Franchisors provide the benefit of a strong support and security system. Often franchisors provide training schemes and support systems like the accounts management, sales, advertising and more. These things will get included in the overall price of the franchise fee.

Less Failure Ration

Less Failure Ratio

There is an old belief that atleast 95% of businesses fail within the first 5 years—this untrue point is usually advocated by franchisors who attempt to persuade new people into their network. The franchise assures the security which lasts the impression that there is a lesser possibility of the business to fail.

recognized brand

A recognized brand

The franchisee takes the possible advantages of running their franchise under the previously established brand name of the business. This means less of work and cost is incurred in trying to set-up and build on the brand of the business. Since the brand is already reputed and trusted by the market and therefore should produce a continuous stream of loyal customers. Adopting a franchise means deriving the benefits of the franchises trademark and potential advantages of a registered trademark.

opportunity earn money

Opportunity to earn more money

People wishing to start their own business as a franchisee thinks that by doing so they will make more money. With the strong support of a big name and a big brand, they think they’ll obtain more customers and make more profits. But it isn’t always the instance. Once a franchisee pays the fees to the franchisor, there will be a reduction in the profit and due to such restrictions levied by the franchise rules, it is usually less easy to invest in the profits in a tax-efficient manner as you could by establishing a new limited company. A franchisee might take advantage of the higher profits in the beginning, but in the long term, they will discover that starting their own business would turn out to be more profitable.

Disadvantages of Franchise

The articles of association specify the rules as per which a company must be run and managed.

Identical to any business structure, there are disadvantages to establishing a franchise. People sometimes think that the benefits of a franchise can offset the disadvantages, but simply because they are commonly blinded by the prospective risks of beginning a new business from scratch. Whilst the procedures of establishing a limited company under which the franchise runs will be identical to as if you were starting your own business.

no control

No control

The franchisee doesn’t have any control of the business or how it runs, that means the franchisee has very limited control. Since the business rules have already been placed by the franchise as per the franchise agreement, the way the business runs is already been specified by the brand of the franchise. Hardly been any new franchisee will be able to run the business outside of these boundaries.

Attached to supplier

Attached to Suppliers

Running a franchise business, you’d likely to restrict down the costs. Searching the inexpensive suppliers in order to reduce your overheads and boost up your profits. But being a franchise part means you’ll be required to take advantage of the franchise supply network. You will be attached to the suppliers specified to you as per the franchise agreement. The evident disadvantage for a franchisee is not the lack of control but it is the profits which get reduced.

risks from others

Risks from Others

The likelihood of reputation of your business for getting damaged would be high only if any other franchisees did something which is not apt for the reputation of the brand, would, in turn, carry a huge impact on your own business. It is understandable that any franchisee would always be dependable on the brand of the business for bringing in more customers. But if something inappropriate circumstance happens, it could damage not only the brand’s reputation but also damage your sales and overall profits.

franchise costs

Franchise Costs

Costs are the main drawback for any franchise as the franchisee has to bear the initial cost of buying for entering into the franchise agreement. As a part of the ongoing franchise agreement, the franchisee has to pay the continuous fees for the support and training offered by the franchisor. The profits would be restricted in the long-term that you can make as a franchisee. Completing the procedure to start your own limited company will be a better choice, as there will be some constraints on how you run your business and more potential opportunities for profit, without the overheads.

profit cut

Profit cut

The franchisor will be expected in reduction of profit. These are often known as “franchise fees”. It is significant to know how the franchise fees work. As these will be periodic fees (usually annually) along with a percentage of the turnover the franchise business makes. You all do the strenuous work and still have to pay them for the entitlement of using their name (and support). When there are strenuous times, this might mean a further curtailment in already low profits and a struggle for your business.

difficult to exit business

Difficult to exit business

Selling a business can be a daunting task. Selling a franchise business can have various drawbacks as any buyer is bound by the terms that have been negotiated with the franchisor at the time of granting of the franchise. The initial franchise agreement will likely to have been negotiated for a definite period of time, so even if the business is flourishing, the franchise terms will then be re-negotiated on renewal and any prospective buyer may be discouraged by the unpredictability of the terms the franchisor may look to introduce on renewal.