Franchising a business is one way of expanding operations. A lot of entrepreneurs who have experienced success with their ventures have flirted with this idea and some have actually done it. But the concept of franchising itself carries with it a set of pros and cons. So before any business owner decides to franchise their business, they must first look closely at the benefits and drawbacks.
List of Pros of Franchising
1. It provides access to better talent.
Through franchising, you can find people who are talented and can manage different locations of your business. This also gives them an incentive to work hard. Generally speaking, those who are most qualified prefer to run a business in return for profits rather than work as a salaried employee. In short, franchising is much better at letting you find talent who will work hard to build the business.
2. It provides an easy way to get expansion capital.
You can get expansion capital a lot easier if you franchise your business. The franchising model works like this: those who want to franchise pay you to buy outlets. As such, you can increase the number of stores you have in different locations without using your own capital. You don’t even have to go to banks or investors in order to request financing.
3. It offers little growth risk.
Franchising a business can create high financial returns without so much risk. Compared to adding outlets on your own, you don’t need to invest so much money when franchising in a new location. If your business model is good, you can earn high royalties from the sales of your outlets. In fact, the amount is way higher compared to you opening and running the outlet yourself.
List of Cons of Franchising
1. You don’t have much control over the franchise.
Franchising often means relinquishing control. In other words, a franchise is an independent business with different goals than yours. This is enough to create conflict and even worse, legal troubles.
2. It is difficult for everyone to work together.
Remember that each franchise has different goals. As such, it’s difficult to get them to work together. Franchisees usually profit from the effort of others and that can be unfair to some. Although there are ways to minimize this from happening, doing so costs money.
3. It makes innovation harder.
Innovation is key for the success of a business. However, this becomes difficult when dealing with franchises because they are a separate entity. If you owned the entire line, you could just come up with an idea and implement it. However, a franchise model requires you to talk your idea over with the different franchises to see if they agree or not.
There’s no question that franchising is a great way to grow your business. However, it does involve a series of pros and cons that need to be weighed carefully. But when you believe that the pros outweigh the cons, then you’ll find franchising a satisfactory way to expand your operations.
Natalie Regoli, Esq. is the author of this post and the editor-in-chief of our blog. She received her B.A. in Economics from the University of Washington and her Masters in Law from The University of Texas School of Law. In addition to being a seasoned writer, Natalie has almost two decades of experience as a lawyer and banker. If you would like to reach out to contact Natalie, then go here to send her a message.