Franchising – Meaning | Advantages and Disadvantages

What is Franchising?

Franchising is a well-known business strategy. Franchising is a form of contractual agreement in which a franchisee (a retailer) enters into an agreement with a franchisor (a producer) to sell the goods and services for a specified fee or commission. The retailer through his outlet distributes the goods or services.

Franchising - Meaning, Advantages, Disadvantages

Franchising – Meaning, Advantages, Disadvantages

It brings together the title-holder of recognized merchandise with another business. This strategy can be opted by small businesses by having a brand name of a well-known company associated with it.

For small business who cannot afford for much finance and capital investment for a business startup, franchising will be beneficial. Buying a franchise can be a shortcut to success.

Advantages of buying a franchise

The following are some of the advantages of buying franchise.

1. Higher success Rate: When entrepreneurs buy a franchise, they buy an established concept that has been successful. Franchisees stand a much better chance of success than people who start independent businesses.

Today, Raymonds, being the world’s largest integrated producers of suiting fabrics provides franchise opportunities. An entrepreneur by becoming a franchisee of Raymonds will be able to sell the suiting fabrics at ease due to the well established name.

2. Assistance: When entrepreneurs buy a franchise; they get all the equipment, supplies and instruction or training needed to start the business.

3. Cost reduction: Franchisor can afford to buy in bulk and pass the savings to franchisees. Inventory and supplies will cost less than running an independent company. For example, running a courier company on own could be a difficult task. But by being a franchisee of Overnite Express, the franchisee can save money.

4. Star Power: Many well-known franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers. For example, buying a franchise of Aptech will help to attract customers easily.

5. Profits: A franchise business can be immensely profitable. The probability for a small business to succeed is high as they have the backup and support of well established big business enterprises.

6. Marketing assistance: When a business is associated with a franchisor then the big-business themselves help in corporate marketing of the goods of the small industry or business they are providing support for.

7. Staff training: The franchisor provides all the necessary training to the franchisee or small business staff and provides additional resources and decision-making capabilities to a small business.

Disadvantages of buying a franchise

The following are some of the disadvantages of buying franchise.

1. Control: Some franchisors exert a great degree of control. No decision can be taken by the franchisees without consulting the franchisor.

2. Ongoing Costs: Besides the original franchise fee, royalties, a percentage of franchise’s business revenue, will have to be paid to the franchisor each month.

3. Lack of Support: All franchisors do not offer the same degree of assistance in starting a business and operating it successfully. Assistance is provided only at the time of starting the business.

4. Expensive: Buying a well-known franchise is very expensive. Entrepreneurs must have the ability to arrange the necessary finance.

5. Time consuming: Lot of time is required while selecting a franchise. A complete and thorough research is required to select the right franchise and to determine whether it would work for the business or not.

6. Misunderstanding: Franchise is a complex procedure and disputes may arise between the franchisee and franchisor.

Leave a Reply

Recent Posts





Related pages


voidable contract legal definitioninterpretation of ratio analysismembers of gattbusiness economistsmeaning of securitisationdisadvantages of financial ratio analysismatrix organizational structure advantages and disadvantagesirda definitionadvantages and disadvantages of classical management theorygeographic filing system exampleadvantages and disadvantages of online marketingexplain the doctrine of privity of contractadvantages and disadvantages of internal rate of returndebt to capitalization ratioinduction and deduction methodsale of goods act definitioncustomer departmentalization advantages and disadvantagesprosperity phase of business cycledisadvantage of autocratic leadershippremiums sales promotionexamples of shopping goodsscientific management theory by f w taylorcalculating paybackdisadvantages of cash flowimplementing activity based costingabsorption in cost accountingmethods of absorption of factory overheadsdirect quotation currencyrbi economic policyfactors affecting pricing decisions in marketingadvantages and disadvantages of fixed budgetingadvantages and disadvantages of traditional commerceaudit techniques and proceduresbase stock method of inventory valuationnon probability purposive samplingcaveat vendor definitionrbi issue departmentregister of joint stock companiesroles of the imffavorable variance definitioncomputerised stock control system advantagesdefine capital expenditure budgetexamples of cluster samplingwhat is nominal wagevoidable contractrelationship between a banker and customerrepresentative sampling methodmeaning of forward contractfunctions of regional rural banksprofitability index method of capital budgetinghorizontal merger meaningbenefits of zero based budgetingsole proprietorship economics definitiondisadvantage of decentralisationinventory turnover formula in daysdisadvantages of mbokinds of negotiable instrumentschit fund examplevoid contract in business lawdisadvantages of budgetingfranchises advantages and disadvantagescorporations advantages and disadvantagesdifference between absorption and variable costingexport financing definitiondisadvantages of observational researchconsumer cooperative storesstaff turnover calculationadvantages and disadvantages market economyexceptions to privity of contractmeaning of remunerationssole trader advantagesdishonoured chequeautocratic def