A franchise can be defined as a business opportunity that is given to a franchisee, which allows or permits him to start a lawful business by using the expertise, ideas and processes of the franchisor. This process is known as franchising. In many cases, the franchisee is also allowed to use the name, brand as well as the business model of the franchisor. Some of the popular examples of the franchise are McDonalds, Subway, Pizza Hut, etc.
Buying a franchise has various advantages as well as disadvantages. Now, let us have a look at the advantages and disadvantages of buying a franchise.
Advantages of buying a franchise:
- Buying a franchise will help in creating a strong identity for the small businesses as they are supported by the big business networks. This brand identity will help small businesses to get success in the market. The franchisees will take advantage of the logos and slogans of their franchisors.
- The chances of business failures in a franchise
isless as your business is based on the business model of an established brand that has been running successfully for several years.
- Buying a franchise is ideal for beginners in this field as you do not need any prior experience as you will be trained by the franchisor to operate their business model. On the other hand, if you want to start a privately owned business, it will become difficult to manage without any experience.
- You will find it easier to finance your business as you will enjoy the good reputation of the franchisor, which will help the franchise in getting loans from the banks. The reputation will also help the franchise in case of any lawsuits, accidents or problems related to labours.
- A franchise enjoys exclusive rights in its own territory as there is only one franchise in a single territory. This helps the small businesses to compete with the large businesses as the franchise’s already have recognition from the franchisor.
Disadvantages of buying a franchise:
- You will have limited independence or a set of restrictions as you have to follow a set of guidelines given by your franchisor. Thus, there is
lesserchance to show your recognition creativity or to bring any change in the structure if the business.
- Buying a franchise will be costlier than opening a privately owned business because
inaddition to the initial costs, you will also have to pay various overhead costs such as annual royalties, management service fees, etc. to the franchisor.
- Deterioration in the reputation of the franchisor or bad performance by other franchisees will affect your business, no matter how efficiently you run your franchise.
- You will not be allowed to enjoy the entire profit. A portion of the profit gained must franchise with your franchisor.
- Selling of a franchise can be a difficult job as you can sell the franchise only to those individuals who are approved by the franchisor.