Question

Discuss in detail the franchise process including the advantages and disadvantages

for both the franchisee and franchisor.

• REQUIRE 3 PAGES

Answer 1

A franchise helps you to extend your business to other small business owners known as franchisees by selling the rights to use your name. The franchisee charges you monthly fees in return, usually a portion of the unit's gross sales. Also, the franchisee agrees to follow the established business model, while offering help in areas such as training, marketing and business.

Such business features make it a successful franchising prospect. These include market uniqueness, proven reputation, good management and an easy-to-follow operating framework that is very simple for franchisees. Also, the company should be adaptable to various forms of geographic locations.

If you have determined your company is appropriate for franchising, there are many steps to take. First, create a formal strategic plan that contains details such as the forecasted financial statements and the marketing strategy. Develop also a franchise agreement which sets out the terms and obligations for you and your franchisees. Next, file any paperwork needed to get state approval. If your franchise is accepted, start interviewing employees to help you get started. Now, you're able to sell your franchise opportunity and start marketing.

While you as the franchisor are not directly involved in the day-to-day activities of your franchise units, a franchisee misstep could still have a negative effect on your company as a whole. For example, if you run a restaurant franchise, an incident of food poisoning in any franchise unit could adversely affect revenue for the entire franchise chain.

Advantages are:

Expansion can be quicker as franchisees provide the labor and their sales ensure growth Franchisees are responsible for the success of their business, so that they are more driven

Franchisees may be more creative to expand the company and make a profit than workers would be The franchisor puts very little money into new locations as it comes from the franchisee

Productive locations will return high royalties In general, reliable operations around the company mean better productivity and higher quality rates Franchisees should be completely committed to the investment they invest in

Disadvantages are:

Franchisees can not be supervised as closely as employees and may have specific priorities to the franchisor Franchise recruitment can be slower and less effective than recruitment of employees

Franchisors receive on selling royalties. Franchisees make money out of the sales. It is not always possible to achieve growth in both, possibly creating friction Franchisees do not always work together as workers might, thereby losing any future mutual gain

The upfront investment needed (time and money) can be massive – a pilot project will need to be tested Selecting one wrong franchisee will destroy the entire franchise's credibility