Positives and Negatives of Owning a Franchise.

Are you considering starting a business? If your answer is, yes! One of the routes for

consideration is via a franchise. There are three main forms of franchises – business format,

product, and manufacturing – and each operates in a different way. However, the discussion

is going to focus on the positives and negatives of owning a franchise. There are many merits

of franchising, as well as demerits for both franchisees and franchisors.

Franchising is grounded on a marketing model which can be espoused by a business entity

as an approach for growth. Where applied, a franchise owner (franchisor) licenses part or all

of its expertise, the way it does its business, intellectual property (IP), and rights to trade its

branded products and services to a franchise buyer (franchisee). Reciprocally, the franchisee

pays fees and agrees to particular commitments, normally stipulated in an agreement: (Hill,

2015).

The positives of owning a franchise as a Franchisor are detailed as follows;

Access to capital

Building a business as a franchise permits organic growth with no debt. The business grows

as capital is availed from franchisees through the form of fees, rather than taking loans.

Efficient growth

Opening multiple branches can be a daunting task that is expensive money-wise and time-

wise. Franchising can help out by sharing that burden with another business owner. The

process becomes more efficient and takes the responsibility off the initial business owner

Increased brand awareness

In addition, brand awareness is increased because of franchising. The increased footprint of

the brand leads to more people getting to know about the brand. This amplified brand

cognizance of a franchise with more outlets can be significantly advantageous to the

franchisor and franchisees. For example, McDonald’s is now known all over the world

because they started franchising their brand.

While franchisors receive a lot of benefits from starting a franchise, there are also some

disadvantages to consider, these include;

Loss of complete brand control

Franchising literally means giving away or selling some level of control over a brand even

though a franchise agreement may have robust conditions and instructions to guide the

decisions made by the franchisee. Franchisees will not effectively become copies of

Franchisors, they will think and act in a different way.

Increased potential for legal disputes

The success of a franchise relies heavily on the agreement between Franchisor and

Franchisee. Where a legal binding agreement exists there is bound to be a risk of legal

disputes. One might argue that a well-designed franchise agreement will limit the possibilities

for disputes, however, these disagreements are still possible. These disputes may end up in a

costly court system.

To sum up, owning a franchise has its merits and demerits and when one is faced with a

decision to start a franchise business they should ensure that they have researched the

advantages and disadvantages highlighted above and others that have been left out

Positives and Negatives of Owning a Franchise

Corporate Governance and Business Ethics (ent 201)

Midlands State University

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